Chapter 6, Problem 6.7E

(a)

(1)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

FIFO: In First-in-First-Out method, items purchased initially are sold first. So, the value of the ending inventory consists the recent cost for the remaining unsold items.

LIFO: In Last-in-First-Out method, items purchased recently are sold first. So, the value of the ending inventory consists the initial cost for the remaining unsold items.

Average cost method: In Average Cost Method the cost of inventory is priced at the average rate of the goods available for sale.

Formula for weighted average cost method:

$\text{Weighted-average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total Number of Units Available For Sale}}$

To compute: The cost of ending inventory and cost of goods sold using FIFO method.

(b)

To determine

The costing method which gives highest inventory, and highest cost of goods sold.

(c)

To determine

To relate: The average-cost values for ending inventory, and cost of goods sold with ending inventory, and cost of goods for FIFO and LIFO.

(d)

To determine

To Explain: The reason for the average cost.