Reference no: EM13510229

Costing inventory

White Dove Company began operations in 2012 by selling a single product. Data on purchases and sales for the year were as follows:

Purchases:
Date	Units Purchased	Unit Cost	Total Cost
6-Apr	62,000	$12.20	$756,400
18-May	66,000	13	858,000
6-Jun	80,000	13.2	1,056,000
10-Jul	80,000	14	1,120,000
10-Aug	54,400	14.25	775,200
25-Oct	25,600	14.5	371,200
4-Nov	16,000	14.95	239,200
10-Dec	16,000	16	256,000
	400,000		$5,432,000
	Sales:
	April	32,000 units
	May	32,000
	June	40,000
	July	48,000
	August	56,000
	September	56,000
	October	36,000
	November	20,000
	December	16,000
	Total units	336,000
	Total sales	$5,200,000

On January 4, 2013, the president of the company, Joel McLees, asked for your advice on costing the 64,000-unit physical inventory that was taken on December 31, 2012. Moreover, since the firm plans to expand its product line, he asked for your advice on the use of a perpetual inventory system in the future.

1. Determine the cost of the December 31, 2012, inventory under the periodic system, using the (a) first-in, first-out method, (b) last-in, first-out method, and (c) average cost method.

2. Determine the gross profit for the year under each of the three methods in (1).

3. a. Explain varying viewpoints why each of the three inventory costing methods may best reflect the results of operations for 2012.

b. Which of the three inventory costing methods may best reflect the replacement cost of the inventory on the balance sheet as of December 31, 2012?

c. Which inventory costing method would you choose to use for income tax purposes? Why?

d. Discuss the advantages and disadvantages of using a perpetual inventory system. From the data presented in this case, is there any indication of the adequacy of inventory levels during the year?