Red Cap Ltd. uses a perpetual inventory system. It recorded the following inventory transactions during 2011:.

Required:
a. Calculate the cost of goods sold and gross profit for Red Cap Ltd. for 2011 if it uses each of the following cost flow assumptions:
i. First-in, first-out
ii. Moving average
b. On the balance sheet, which of the two assumptions provides the more conservative estimate of the carrying value of inventory? Which provides the better estimate of the current cost of replacing the inventory? Explain your answers.
c. Which method provides the more conservative estimate of reported income? Under what circumstances would the opposite be true?

Sale Price NumberUnit Purchase January 1, 2011 January 25 March 6 Sale #1 August 7 Sale #2 of Units 40 150 60 140 60 120 Price $7 $8 59 S18 S11 $21