Chapter 2, Problem 5P

Inventory costing methods

The purchases and issues of rubber gaskets (Materials Ledger #11216) as shown in the records of Hillsdale Corp. for November follow:

Required:

1. 1. Complete a materials ledger account similar to Figure 2-10 (the “On Order” columns should be omitted) for each of the following inventory costing methods, using a perpetual inventory system:
2. a. FIFO
3. b. LIFO
4. c. Weighted average (carrying unit prices to five decimal places)
5. 2. For each method, prepare a schedule that shows the total cost of materials transferred to Work in Process and the cost of the ending inventory.
6. 3. If prices continue to increase, would you favor adopting the FIFO or the LIFO method? Explain.
7. 4. When prices continue to rise, what is the effect of FIFO versus LIFO on the inventory balance for materials reported in the balance sheet? Discuss.