Question: 1. What are the characteristics of a just-in-time inventory system? Briefly explain some advantages and risks of this type of system
2. Why do companies that use perpetual inventory systems also take an annual physical inventory? When is this physical inventory usually taken? Why?
3. Under what circumstances might a company write down its inventory to carrying value below cost?
4. Clear Sound Audio uses a periodic inventory system. One of the stores most popular products is an MP8 car stereo system. The inventory quantities, purchases, and sales of this product for the most recent years are as follows:
|
Number of
Units
|
Cost Per
Unit
| Total Cost |
| Inventory, Jan 1 |
12 |
$299 |
$3,588 |
| First Purchase (May 12) |
15 |
306 |
4,590 |
| Second purchase (July 9) |
21 |
308 |
6,468 |
| Third purchase (Oct 4) |
8 |
315 |
2,520 |
| Fourth purchase (Dec 18) |
17 |
320 |
5,440 |
| Goods available for sale |
73 |
|
$22,606 |
| Units sold during the year |
51 |
|
|
| Inventory, Dec 31 |
22 |
|
|
Instructions: a. using periodic costing procedures, computer cost of the December 31 inventory in the cost of goods sold for the MP8 systems during the year under each of the following cost flow assumption:
1. First-in, first-out
2. Last-in, first-out
3. Average cost (round to nearest dollar, except unit cost)
b. Which of the three inventory pricing methods provide the most realistic balance sheet valuation of inventory in light of the current replacement cost of the MP8 units? Does this same method also produce the most realistic measure of income in light of the cost being incurred by Clear Sound Audio to replace the MP8 systems when they are sold? Explain.