The management of Gisel Group is reevaluating the appropriateness of using its present inventory cost fl ow method. They request your help in determining the results of operations for 2020 if either the FIFO method or the average-cost method had been used. For 2020, the accounting records show the following data.

Purchases were made quarterly as follows.

Operating expenses were €147,000, and the company’s income tax rate is 32%.

Instructions
a. Prepare comparative condensed income statements for 2020 under FIFO and average-cost. (Show computations of ending inventory.)
b. Answer the following questions for management.
1. Which cost flow method (FIFO or average-cost) produces the more meaningful inventory amount for the statement of financial position? Why?
2. Which cost flow method (FIFO or average-cost) is more likely to approximate actual physical fl ow of the goods? Why?
3. How much additional cash will be available for management under average-cost than under FIFO? Why?

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Inventories Purchases and Sales Beginning (10,000 units) Ending (15,000 units) Total net sales (225,000 units) Total cost of goods purchased (230,000 units) €865,000 €22,800 578,500 Quarter Units Unit Cost Total Cost 60,000 €2.30 €138,000 50,000 2.50 2.60 125,000 130,000 3 50,000 70,000 2.65 185,500 230,000 €578,500