Reference no: EM132409119

Question

Information given:

1. The units of an item available for sale during the year were as follows:

01-Jan Inventory 21 units at $122

17-Feb Purchase 54 units at $128

21-Jul Purchase 63 units at $132

23-Nov Purchase 38 units at $155

There were 50 units of the items in the physical inventory at 31 December. Periodic inventory system is used.

Required: Determine the inventory cost using :

(a) FIFO

(b) LIFO

(c) The average cost methods.

A firm is assumed to use perpetual system which is separately determined inventory under FIFO and LIFO and then compare the results.

i) In each space below, place the correct sign (< / > / =) for each comparison by assuming periods of rising prices. a) FIFO supplies __________ LIFO supplies

b) FIFO cost of sales __________ LIFO cost of sales

c) FIFO net profit ___________ LIFO net profit

d) FIFO taxable income ________ LIFO taxable income

ii) Why the use of LIFO is more preferable by a management compared to FIFO in period of rising prices?