Ferro Ltd. began operations on January 1, 2012. Merchandise purchases and four alternative methods of valuing inventory' for the first two years of operations are summarized below:

Required:
a. Which of the four methods listed above does not apply the matching principle? Briefly explain.
b. Determine the cost flow assumption or inventory valuation method that would report the highest net income for 2012.
c. Assuming that FIFO had been used for both years, how much would be the cost of goods sold for 2013?

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2012 2013 Purchases $600,000 $700,000 Ending inventory Specific identification First-in, first out (FIFO) Average cost Lower of cost and market 212,000 220,000 216,000 196,000 192,000 188,000 190,000 176,000