Golden Eagle Company began operations in 2014 by selling a single product. Data on

purchases and sales for the year were as follows:

Purchases:

Date Units Purchased Unit Cost Total Cost

April 6 31,000 $36.60 $1,134,600

May 18 33,000 39.00 1,287,000

June 6 40,000 39.60 1,584,000

July 10 40,000 42.00 1,680,000

August 10 27,200 42.75 1,162,800

October 25 12,800 43.50 556,800

November 4 8,000 44.85 358,800

December 10 8,000 48.00 384,000

200,000 $8,148,000

Sales:

April 16,000 units

May 16,000

June 20,000

July 24,000

August 28,000

September 28,000

October 18,000

November 10,000

December 8,000

Total units 168,000

Total sales $10,000,000

On January 4, 2015, the president of the company, Connie Kilmer, asked for your advice

on costing the 32,000-unit physical inventory that was taken on December 31, 2014.

Moreover, since the firm plans to expand its product line, she asked for your advice on

the use of a perpetual inventory system in the future.

1. Determine the cost of the December 31, 2014, inventory under the periodic system, using

the (a) first-in, first-out method, (b) last-in, first-out method, and (c) weighted average cost

method.

2. Determine the gross profit for the year under each of the three methods in (1).

3. a. Explain varying viewpoints why each of the three inventory costing methods

may best reflect the results of operations for 2014.

b. Which of the three inventory costing methods may best reflect the replacement

cost of the inventory on the balance sheet as of December 31, 2014?

c. Which inventory costing method would you choose to use for income tax

purposes? Why?

d. Discuss the advantages and disadvantages of using a perpetual inventory

system. From the data presented in this case, is there any indication of the adequacy

of inventory levels during the year?