The management of Utley Ltd. asks your help in determining the comparative effects of the FIFO and average-cost inventory cost flow methods. For 2011 the accounting records show these data.
Inventory, January 1 (10,000 units) ....... £ 35,000
Cost of 120,0000 units purchased ....... 504,500
Selling price of 100,000 units sold ....... 665,000
Operating expenses .............. 130,000
Units purchased consisted of £35,000 units at £4.00 on May 10; 60,000 units at £4.20 on August 15: and 25,000 units at £4.50 on November 20. Income taxes arc 28%.

Instructions
(a) Prepare comparative condensed income statements for 2011 under FIFO and average-cost. (Show computations of ending inventory.)
(b) Answer the following questions for management in the form of a business letter.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the statement of financial position? Why?
(2) Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
(3) How much more cash will be available for nlaiiagcnen1 under average-cost than under FIFO” Why?