Chapter 6, Problem 6.32AP

Accounting for inventory using the periodic inventory system—FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO, and weighted-average

Jepson Electronic Center began October with 90 units of merchandise inventory that cost $70 each. During October, the store made the following purchases:

Oct. 3	20 units@ $ 75 each
12	40 units@ $ 78 each
18	60 units@ $ 84 each

Jepson uses the periodic inventory system, and the physical count at October 31 indicates that 110 units of merchandise inventory are on hand.

Requirements

1. Determine the ending merchandise inventory and cost of goods sold amounts for the October financial statements using the FIFO, LIFO, and weighted-average inventory costing methods.

2. Sales revenue for October totaled $27,000. Compute Jepson’s gross profit for October using each method.

3. Which method will result in the lowest income taxes for Jepson? Why? Which method will result in the highest net income for Jepson? Why?