Shepard Company sold 4,000 units of its product at $100 per unit in year 2016 and incurred operating expenses of $15 per unit in selling the units. It began the year with 840 units in inventory and made successive purchases of its product as follows.

Required
1. Prepare comparative income statements similar to Exhibit 5.8 for the three inventory costing methods of FIFO, LIFO, and weighted average. (Round all amounts to cents.) Include a detailed cost of goods sold section as part of each statement. The company uses a periodic inventory system, and its income tax rate is 40%.
2. How would the financial results from using the three alternative inventory costing methods change if the company had been experiencing decreasing prices in its purchases of inventory?
3. What advantages and disadvantages are offered by using (a) LIFO and (b) FIFO? Assume the continuing trend of increasing costs?

Transcribed Image Text:

Jan. Beginning inventory April 2 Purchase June 14 Purchase Aug. 29 Purchase Nov. 18 Purchase 840 units $58 per unit 600 units $59 per unit 1.205 units@ $6l per unit 700 units @ $64 per unit 1.655 units @ $65 per unit Total 5,000 units