Chapter 5, Problem 5.31P

Problem 5.31

LO 7, 8

Cost flow assumptions-FIFO and LIFO using a periodic system Mower-Blower Sales Co. started business on January 20, 2016. Products sold were snow blowers and lawn mowers. Each product sold for $1,400. Purchases during 2016 were as follows:

	Blowers	Mowers
January 21	20 @ $800
February 3	40 @ 780
February 28	30 @ 760
March 13	20 @ 760
April 6		20 @ $840
May 22		40 @ 860
June 3		40 @ 880
June 20		60 @ 920
August 15		20 @ 860
September 20		20 @ 840
November 7	20 @ 800

The December 31, 2016, inventory included 10 blowers and 25 mowers. Assume the company uses a periodic inventory system.

Required:

1. What will be the difference between ending inventory valuation at December 31, 2016, under the FIFO and LIFO cost flow assumptions? (Hint: Compute ending inventory under each method, and then compare results.)
2. If the cost of mowers had increased to $960 each by December 1, and if management had purchased 30 mowers at that time, which cost flow assumption was probably being used by the firm? Explain your answer.