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Perpetual and Periodic Inventory Systems

1/1 Beginning Inventory 1,000 Units @ $10 per Unit
3/15 Purchase of Inventory 3,500 Units @ $12 Per Unit
7/21 Sale of Inventory 4,000 units
9/12 Purchase of Inventory 1,600 Units @ $14 per unit
10/31 Sale of Inventory 1,200 Units.

A. Using LIFO, what is the Cost of Goods Sold uning the Perpetual Method? What is the Cost of Goods Sold using the Periodic Method? What is the cost of ending inventory for each method?

B. Is there a difference in the Net Income for each Method? Why?

C. What are the advantages of using each method?

Solution Preview

Using the Perpetual LIFO system, we will maintain a accurate count on the cost of goods sold at each transaction.

Cost of goods sold
At 7/21, 3,500 units at $12 per unit = $42,000 (those units are purchased at 3/15)
500 units at $10 per unit = $5,000 (those units were in the beginning inventory)
At 10/31, 1,200 units at $14 per unit = $16,800 (those units are purchased at 9/12)
Total $63,800

Using the periodic method, we would perform an ending inventory count, then assign appropriate per unit cost for the left over ...

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