Chapter 6, Problem 6.8AP

(a)

(1)

To determine

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.

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.

Moving-average cost method: Under moving average cost method company calculate a new average after every purchases made. It is determined by dividing the cost of goods available for sale by the units on hand.

To calculate: (i) Cost of goods sold, (ii) ending inventory, and (iii) gross profit, under LIFO method.

(b)

To determine

To compare: The results for the above three cost flow assumptions.