Problem: Parker Company uses a perpetual inventory system. It entered into the following calendar-year 2005 purchases and sales transactions:
Jan. 1 Beginning inventory . . . . . . . 600 units @ $44/unit
Feb. 10 Purchase . . . . . . . . . . . . . . . 200 units @ $40/unit
Mar. 13 Purchase . . . . . . . . . . . . . . 100 units @ $20/unit
Mar. 15 Sales . . . . . . . . . . . . . . . . . . 400 units @ $75/unit
Aug. 21 Purchase . . . . . . . . . . . . . . . 160 units @ $60/unit
Sept. 5 Purchase . . . . . . . . . . . . . . . 280 units @ $48/unit
Sept. 10 Sales . . . . . . . . . . . . . . . . . . 200 units @ $75/unit
Totals . . . . . . . . . . . . . . . . . 1,340 units 600 units
Required to do:
Question 1. Compute cost of goods available for sale and the number of units available for sale.
Question 2. Compute the number of units in ending inventory.
Question 3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) specific identification (Note: The units sold consist of 500 units from beginning inventory and 100 units from the March 13 purchase), and (d) weighted average.
Question 4. Compute the gross profit earned by the company for each of the four costing methods in part 3.
Question 5. If the company's manager earns a bonus based on a percent of gross profit, which method of inventory costing will the manager likely prefer?