Chapter 6, Problem 8BP

Periodic: Income comparisons and cost flows A1 P3

Shepard Company sold 4,000 units of its product at $100 per unit during the year and incurred operating expenses of $15 per unit in selling the units. It began the year with 840 units in inventory and made successive purchases of its product as follows.

Jan. 1	Beginning inventory.	840 units $58 per unit
Apr. 2	Purchase	600 units & $59 per unit
June 14	Purchase	1,205 units <a $61 per unit
Aug. 29	Purchase	700 units $64 per unit
Nov. 18	Purchase	1,655 units #$65 per unit
	Total	5,000 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 decreasing prices 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.