QUESTION TWO INVENTORY

Luyando Inc. is a retailer operating in Kitwe $.$ Luyando uses the perpetual inventory method. All

sales returns from customers result in the goods being returned to inventory; the inventory is

not damaged. Assume that there are no credit transactions; all amounts are settled in cash. You

are provided with the following information for Luyando Inc. for the month of January $2017.$

January $25$

Purchase

$20$

$22$

Instructions

$($a$)$ Outline two advantages and two disadvantages of FIFO, LIFO AND AVCO

$(12$ Marks$)$

For each of the following cost flow assumptions, calculate

$(15$marks$)$

$($i$)$ Cost of goods sold, $($ii$)$ Ending inventory, and $($iii$)$ gross profit.

$(1)$ LIFO.

$(2)$ FIFO.

$(3)$ Moving$-$average cost. $($Round cost per unit to three decimal places.$)$

$($b$)$ Compare results for the three cost flow assumptions and advice Luyando which cost

modern should she maintain.

$(3$marks$)$