The management of Danica Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost fl ow methods. For 2022, the accounting records provide the following data.

Inventory, January 1 (10,000 units) ...................... $ 47,000
Cost of 100,000 units purchased .......................... 532,000
Selling price of 84,000 units sold .......................... 735,000

Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on August 15; and 30,000 units at $5.60 on November 20. Danica uses a periodic inventory system.

Instructions

a. Prepare comparative condensed partial income statements for 2022 under FIFO and LIFO through gross profit. (Show computations of ending inventory.)

b. Answer the following questions for management.

1. Which inventory cost flow method produces the most up-to-date inventory amount for the balance sheet? Why?

2. Which inventory cost fl ow method produces the most up-to-date gross profit? Why?

3. Which inventory cost fl ow method is most likely to approximate actual physical flow of the goods? Why?

4. How much greater is gross profit under FIFO than under LIFO?