Inventory Costing Methods

Problem 1 - Inventory Costing: Madden Enterprises has only one product. They use the periodic inventory system and report the following data for January of this year. The ending inventory consists of 100 units. For specific identification the company has determined that ending inventory consists of 70 units from the January 6 purchase and 30 units from the January 25 purchase. Jan 1 Beginning inventory 200 unit 5 @ $4.00 = $ 800.00 Jan. 6 Purchase 375 unit @ $5.00 1,875.00 Jan 17 Purchase 450 unit S @ $6.00 2,700,00 Jan 25 Purchase 175 unit S $7.00 1,225.00 Totals 1,200 unit S $ 6,600.00 (a) (b) (0) Determine the cost assigned to ending inventory and to cost of goods sold using specific identification. Determine the cost assigned to ending inventory and to cost of goods sold using FIFO. Determine the cost assigned to ending inventory and to cost of goods sold using LIFO. Determine the cost assigned to ending inventory and to cost of goods sold using weighted-average. Which method yields the lowest net income? (d) Short answer questions. Answer each of the following questions in your own words. Do not just look up the answer and copy and paste. Use your own words to explain the following to someone who doesn't understand business or accounting 1. Why do we have to count inventory every year when the computer keeps track of it anyway? What is inventory shrinkage and why are the managers always worried about how much it will be? 2. If inventory costs are going up, which method, FIFO or LIFO gives you the largest net income? Why? If inventory costs are going up, which method, FIFO or LIFO gives you the least tax expense? Why? When inventory costs are rising which method would you prefer to use, FIFO or LIFO? Why