The following information relates to the inventory of Harry’s Hardware during the month of December:

		Units	Unit cost	Total cost
Dec.   1         10         23	Beginning inventory Purchases Purchases	500 500   600	$5.00 5.30 5.60	$2500 2650 3 360
		1 600		$8 510

Harry’s Hardware uses the periodic inventory system. During the month, 700 units were sold for $6300. A physical stocktake on 31 December verified that 590 units were on hand. Ignore GST.

Required

A.    Prepare an income statement up to gross profit for December using each of the following costing methods:

1.    Specific identification, assuming that 300 units were sold from the beginning inventory and 400 units were sold from the first purchase

2.    FIFO

3.    LIFO

4.    Weighted average.

B.    Which cost flow method resulted in the highest gross profit on sales? the highest ending inventory? Explain why your results differ.

C.    Prepare an income statement to gross profit for December using the FIFO and LIFO costing methods and assuming the 23 December purchase had not been made.

D.   Management of Harry’s Hardware is expecting the unit cost to increase to $6.00 early in the next period. In anticipation of the price increase, a purchase of 600 additional units was made on 29 December at a unit cost of $5.80. Prepare an income statement to gross profit for December using the FIFO and LIFO costing methods.

E.    Compare your results obtained in requirements A, C and D. Explain why your results are or are not the same.