Chapter 6, Problem 8AP

Periodic: Income comparisons and cost flows A1 P3

QP Corp. sold 4,000 units of its product at $50 per unit during the year and incurred operating expenses of $5 per unit in selling the units. It began the year with 700 units in inventory and made successive purchases of its product as follows.

Jan. 1	Beginning inventory	700 units @ $18.00 per unit
Feb. 20	Purchase	1,700 units @ $19.00 per unit
May 16	Purchase	800 units (a) $20.00 per unit
Oct. 3	Purchase	500 units @ $21.00 per unit
Dec. 11	Purchase  Total	2,300 units @ $22.00 per unit 6,000 units

Required

1. Prepare comparative income statements similar to Exhibit 6.8 for the three inventory costing methods of FIFO, LIFO, and weighted average. (Round all amounts to cents.) Include a detailed cost of goods sold section as part of each statement. The company uses a periodic inventory system, and its income tax rate is 40%.

2. How would the financial results from using the three alternative inventory costing methods change if the company had been experiencing declining costs in its purchases of inventory?

3. What advantages and disadvantages are offered by using (a) LIFO and (b) FIFO? Assume the continuing trend of increasing costs.