Cost of sales — periodic inventory system
The following information relates to the inventory of Harry’s Hardware during the month of December.
Harry’s Hardware uses the periodic inventory system. During the month, 700 units were sold for $6300. A physical stocktake on 31 December verifed that 590 units were on hand. Ignore GST.
Required
(a) Prepare an income statement up to gross proft for December using each of the following costing methods: i. specifc identifcation, assuming that 300 units were sold from the beginning inventory and 400 units were sold from the frst purchase ii. FIFO iii. LIFO iv. weighted average. (b) Which cost fow method resulted in the highest gross proft on sales? The highest ending inventory? Explain why your results differ. (c) Prepare an income statement to gross proft for December using the FIFO and LIFO costing methods, assuming the 23 December purchase had not been made and the ending physical inventory count was 90 units. (d) Management of Harry’s Hardware is expecting the unit cost to increase to $6.00 early in the next period. In anticipation of the price increase, a purchase of 600 additional units was made on 29 December at a unit cost of $5.80. Assume the ending physical inventory count was 1190 units. Prepare an income statement to gross proft for December using the FIFO and LIFO costing methods. (e) Compare your results obtained in requirements (a), (c) and (d). Explain why your results are or are not the same