John Lotter established Rocky Dilemma (RDL) on January 5. 2012. The accounts on December 31, 2012, the company's year-end, had balances as follows:

The Dec. 31, 2012 inventory count showed 4,000 units on hand. Of this amount, 3,500 units are from the January 9 purchase and 500 from the March 30 purchase. RDL uses a periodic system for inventories.
Lotter is now preparing financial statements for the year. He is aware that inventory may be costed using the FIFO, weighted-average, or specific identification method. He is unsure of which one to use and requests your assistance. In discussions with Lotter, you learn the following:
i. Suppliers to RDL provide goods at regular prices as long as the current ratio is at least 2 to 1. If this ratio is lower, the suppliers increase the price charged by 10% in order to compensate for what they consider to be a substantial credit risk.
ii. The terms of a long-term bank loan are that the bank can put RDL into a state of bankruptcy if the total debt to total assets ratio exceeds 50%.
iii. Lotter has an agreement with the company€™s general manager that, for each percent above a 25% rate of return on ending total assets (based on pre-bonus income), she will be given an additional $1,000 bonus in the following year. As this is a proprietorship, the business does not pay income taxes.
Required:
a. Compute the cost of goods sold and ending inventory under each of the three cost-flow assumptions.
b. What is the recommendation you would give to John Lotter? Explain.

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Account Current assets, excluding inventory Non-current assets Current liabilitics Lonu-term bank loan Owner's investment (excludes retained earnings) Purchases Balance $10,000 107,000 32,600 50,000 40,000 9 anuary March 30: December 10: 3,500 units SIunit 38,500 12,300 unis S13/unit 59,900 3,200 units @$16/unit 249,600 284,000 40.000 51,200 Sales Expenses, other than cost of goods sold