Inventory Costing Methods
Response to the following problem:
You are the controller for Georgetown Company. At the end of its first year of operations, the company is experiencing cash flow problems. The following information has been accumulated during the year:
Purchases
January 1,000 units @$8
March 1,200 units @ 8
October 1,500 units @ 9
During the year, Georgetown sold 3,000 units at $15 each. The expected tax rate is 35%. The president doesn't understand how to report inventory in the financial statements because no record of the cost of the units sold was kept as each sale was made.
Required
1. What inventory system must Georgetown use?
2. Determine the number of units on hand at the end of the year.
3. Explain cost-flow assumptions to the president and the method you recommend. Prepare income statements to justify your position, comparing your recommended method with at least one other method.