Ryan Sound uses a periodic inventory system. One of the store’s products is a wireless headphone. The inventory quantities, purchases, and sales of this product for the most recent year are as follows.

Instructions
a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the year under each of the following cost assumptions.

1. First-in, first-out.
2. Last-in, first-out.
3. Average cost (round to the nearest dollar, except unit cost).

b. Which of the three inventory pricing methods provides the most realistic balance sheet valuation of inventory in light of the current replacement cost of these headphones? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Ryan Sound to replace these units when they are sold? Explain.

Transcribed Image Text:

Inventory, Jan. 1 ... First purchase Second purchase. Third purchase..... Fourth purchase Goods available for sale... Units sold during the year. Inventory, Dec. 31...... Number of Units 15 32 40 5 16 108 82 26 Cost per Unit $100 101 103 106 108 Total Cost $ 1,500 3,232 4,120 530 1,728 $ 11,110