Lakshmi Ltd. uses the perpetual inventory system and reports the following inventory transactions for the month of June:

Instructions
(a) Determine the cost of goods sold and the cost of the ending inventory using (1) FIFO and (2) average cost. Ignore the effect of income tax. (For average cost, use unrounded numbers in your calculations but round to the nearest cent for presentation purposes in your answer.)
(b) Which cost formula results in the higher cost of goods sold? Why?
(c) Which cost formula results in the higher net income? Why?
(d) Which cost formula results in the higher ending inventory? Why?
(e) Which cost formula in the higher cash flow? Why?

Transcribed Image Text:

Date ExplanationUnits Unit Cost Total Cost $5 $ 7,500 6 13,800 June 1 Beginning inventory1,500 2,300 (2,500) 4,500 1,500 (5,700) 12 Purchases 15 Sale 16 Purchases 23 Purchases 27 Sales 7 31,500 8 12,000