Reference no: EM132937881

The company uses the perpetual inventory system and started May with 1875 units of inventory that had a per unit cost of $8.50 that was purchased April 1 and 1,200 units of inventory that have a cost of $7.25 that were purchased April 15.

All purchases and sales are on credit. The company estimates that it will have sales returns of 3%.

Date             Explanation                  Units                             Unit Cost/Price

12-May          Purchase                  1500                         $ 9.50

15-May            Sale-                    4,125                        $ 21.00

16-May           Purchase                 6,625                          $ 10.15

23-May            Purchase                 2100                         $ 12.252

7-May                 Sale                   -6200                         $ 22.25

Additional Information:

• All purchases and sales are FOB Shipping Point. The shipping charges are paid on the date of the purchase or sale.
• Shipping fees for purchases are $200 per transaction.
• Shipping fees for sales are $100 per transaction.

Required:

Problem 1) Determine the cost of ending inventory using first-in-first-out.

Problem 2) Prepare the journal entry or entries required for the May 23 transaction using first-in-first-out.

Problem 3) Prepare the journal entry or entries required for the May 27 transaction using first-in-first-out.

Problem 4) Determine the cost of ending inventory using average cost.

Problem 5) Prepare the journal entry or entries required for the May 12 transaction using average cost.

Problem 6) Prepare the journal entry or entries required for the May 15 transaction using average cost.

Problem 7) For the month of May, which method (perpetual or periodic) results in a higher Net Income? tell the reason why in your words.