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.

In First-in-First-Out method, the cost of initial purchased items are sold first. The value of the ending inventory consists the recent purchased items.

In Last-in-First-Out method, the cost of last purchased items are sold first. The value of the closing stock consists the initial purchased items.

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

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

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

(2)

To determine

To Compute: The cost of ending inventory and cost of goods sold using, LIFO.

(3)

To determine

To Compute: The cost of ending inventory and cost of goods sold using Average-cost 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