PLEASE DO NOT COPY FROM INTERNET

What are the characteristics of a just-in-time inventory system? Briefly explain some advantages and risks of this type of system (15 Points).

Why do companies that use perpetual inventory systems also take an annual physical inventory? When is this physical inventory usually taken? Why? (15 Points)

Under what circumstances might a company write down its inventory to carrying value below cost? (10 Points)

4. Clear Sound Audio uses a periodic inventory system. One of the stores most popular products is an MP8 car stereo system. The inventory quantities, purchases, and sales of this product for the most recent year are as follows:

	Number of Units	Cost per Unit	Total Cost
Inventory, Jan. 1	12	$299	$3,588
First purchase (May 12)	15	306	$4,590
Second Purchase (July 9)	21	308	$6,468
Third Purchase (Oct. 4)	8	315	$2,520
Fourth Purchase (Dec. 18)	17	320	$5,440
Goods Available for sale	73		$22,606
Units sold during the year	51
Inventory, Dec. 31	22

Instructions

a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the MP8 systems during the year under each of the following cost flow assumptions:

First-in, first-out (15 Points)

Last-in, first-out (15 Points)

Average cost (round to nearest dollar, except unit cost) (20 Points)

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 the MP8 units? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Clear Sound Audio to replace the MP8 systems when they are sold? Explain (10 Points)