The following information relates to the inventory of Margaret’s Megamart Ltd during December.

	Units				Unit cost					Total cost
1/12 Beginning inventory 10/12 Purchase (excluding GST) 15/12 Purchase (excluding GST) 23/12 Purchase (excluding GST)		700 500 300   500					$3.00 3.15 3.30 3.50					$2100 1575 990 1750
Totals		2000										$6415

Margaret’s Megamart Ltd uses the periodic inventory system. During the month, 1300 units were sold for $5525 plus GST. A physical count on 31 December verified that 700 units were on hand.

Required

A. Prepare an income statement down to gross profit for December, using each of the following costing methods:

1.   specific identification, assuming that 400 units were sold from the beginning inventory, 400 units were sold from the first purchase, 200 units were sold from the 15 December purchase, and the remainder from the 23 December purchase.

2.   FIFO

3.   LIFO

4.   weighted average.

B. Which cost flow method(s) resulted in the highest gross profit on sales? the highest ending inventory? Explain your results.

C. Prepare an income statement down to gross profit for December, using the FIFO and LIFO costing methods and assuming that the 23 December purchase had been delayed until January.

D. The management of Margaret’s Megamart Ltd expects the unit cost to increase to $3.90 excluding GST 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 $3.65 excluding GST. Prepare an income statement down to gross profit 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.