Problem 8.5A

Periodic Inventory Costing Procedures

Viking Sound uses a period inventory system. One of the stores products is Dynomak. The inventory quantities, purchases, and sales of this produce for the most recent year are as follows:

Number Cost Total

of Units per Unit Cost

Inventory, Jan. 1.................................................. 30 $100 $ 3,000

First purchase...................................................... 40 102 4,080

Second purchase.................................................. 60 105 6,300

Third purchase..................................................... 10 107 1,070

Fourth purchase................................................... 60 108 6,480

Goods available for sale........................... 200 $20,930

Units sold during the year................................... 160

Inventory, Dec. 31................................................ 40

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 the light of the current replacement cost of the Dynomaks? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Viking Sound to replace the Dynomaks when they are sold? Explain.