Sheepskin Company sells to colleges and universities a special paper that is used for diplomas. Sheepskin typically makes one purchase of the special paper each year on January 1. Assume that Sheepskin uses a perpetual inventory system. You have the following data for the three years ending in 2009.

2007

Beginning Inventory ........ 0 pages

Purchases ...........10,000 pages at $1.60 per page

Sales ............. 8,500 pages

Beginning Inventory .......... 1,500 pages

Purchases...........16,200 pages at $2.00 per page

Sales.............15,000 pages

2009

Beginning Inventory........ 2,700 pages

Purchases............18,000 pages at $2.50 per page

Sales..............20,100 pages

Required:

1. What would the ending inventory and cost of goods sold be for each year if FIFO is used?

2. What would the ending inventory and cost of goods sold be for each year if LIFO is used?

3. For each year, explain the cause of the differences in cost of goods sold under FIFO and LIFO.