Mimotopes Company began operations in 2009 by selling a single product. Data on purchases and sales for

Question:

Mimotopes Company began operations in 2009 by selling a single product. Data on purchases and sales for the year were as follows:

Purchases: Date Units Purchased Unit Cost Total Cost $ 189,100 214,500 264,000 280,000 193,800 92,800 59,800 64,000 $12.

Sales:

April 8,000 units

May 8,000

June 10,000

July 12,000

August 14,000

September 14,000

October 9,000

November 5,000

December 4,000

Total units 84,000

Total sales $1,300,000

On January 6, 2010, the president of the company, Mohammad Zanelli, asked for your advice on costing the 16,000-unit physical inventory that was taken on December 31, 2009. Moreover, since the firm plans to expand its product line, he asked for your advice on the use of a perpetual inventory system in the future.

1. Determine the cost of the December 31, 2009, inventory under the periodic system, using the

(a) First-in, first-out method,

(b) Last-in, first-out method, and

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 2009.

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, 2009?

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?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...