Chapter 6, Problem 6.8AP

(a)

(1)

To determine

Perpetual Inventory System: Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Inventory cost flow: It refers to the flow (movement) of inventory when it is purchased or sell by the business organization.

The various inventory cost flow methods are:

• First-in, first-out (FIFO)
• Last in, first-out (LIFO)
• Average-cost

FIFO method: In FIFO method, those goods are sold first which are purchased first by the business organization.

LIFO method: In LIFO method, those goods are sold first which are purchased in last by the business organization

Average-cost method: In average-cost method, the value of inventory is calculated by the average of cost of goods sold which are available for the sale purpose for that period.

To determine: The cost of (i) goods sold, (ii) ending inventory, and (iii) gross profit under LIFO

(2)

To determine

(a) The cost of (i) goods sold, (ii) ending inventory, and (iii) gross profit under FIFO

(3)

To determine

The cost of (i) goods sold, (ii) ending inventory, and (iii) gross profit under moving-average cost

(b)

To determine

Compare results calculated under all cost-flow methods.