Information for Lahti Company is presented in P6-3A. Assume the same inventory data and that the company uses a perpetual inventory system. Ignore the inventory shortage in P6-3A (d).

Instructions

(a) Calculate the cost of goods sold and the ending inventory using average.

(b) Prepare the journal entry to record the November 15 sale and the sales return on November 16.

(c) If the company changes from average to FIFO and prices continue to fall, would you expect the cost of goods sold and ending inventory amounts to be higher or lower?

Taking It Further

If Lahti Company wishes to change from average to the FIFO cost formula, what factors must it consider before making this change?