Mathew Eagle buys and sells wetsuits. Inventory is counted on the last day of each month. He sells each suit for £50. On 1 January 2010 he held in inventory 50 suits, each of which cost £30. The first quarter’s transactions are stated.

Required:

(a) Calculate the cost of inventory on 31 January and 31 March, using each of the following cost-flow assumptions:

(i) FIFO

(ii) LIFO

(iii) Weighted average cost.

(b) Identify two of the above three cost-flow assumptions approved for use in the UK and explain why the third assumption is not approved.

(c) On the basis of each of the cost-flow assumptions that may be used in the UK, identify the gross profit ratio for the three months to 31 March 2010.

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Date Jan 08 Jan 10 Jan 12 Jan 15 Jan 21 Jan 23 Jan 28 Feb 01 Feb 05 Feb 14 Feb 20 Feb 23 Mar 01 Mar 04 Mar 10 Mar 14 Mar 19 Mar 23 Mar 27 Mar 30 Purchases 100 at £30.00 each 120 at £30.50 each - 150 at £31.00 each 120 at £31.50 each 100 at £32.00 each - Sales 30 - 30 50 - 30 60 20 30 40 60 30 - 50 30 40 60 60