Botch Corp. sold 5,500 units of its product at $45 per unit in year 2011 and incurred operating expenses of $6 per unit in selling the units. It began the year with 600 units in inventory and made successive purchases of its product as follows.

Required
1. Prepare comparative income statements similar to Exhibit 6.8 for the three inventory costing methods of FIFO, LIFO, and weighted average. 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 30%.
2. How would the financial results from using the three alternative inventory costing methods change if Botch had been experiencing declining costs in its purchases of inventory?
3. What advantages and disadvantages are offered by using
(a) LIFO and
(b) FIFO?
Assume the continuing trend of increasingcosts.

Transcribed Image Text:

Jan. Beginning inventory 600 units @ $18 per unit 1,500 units @ $19 per unit Feb. 20 Purchase May 16 Purchase700 units @ $20 per unit Oct 3 Purchase 400 units @ $21 per unit Dec. Purchase 3,300 units$22 per unit Total.. .6,500 units