ACCT 201 Principles of Financial Accounting - Spring 2003
Sections 001 and 002 - Dr. Fred Barbee - Homework Assignment #5 - Chapter 5
Alternative Cost Flows - Perpetual Inventory System

NOTE: Although this problem is different from that found in the text, you may use the working papers designed for Problem 5-1B in solving this problem.

Mercado Company's inventory transactions in the fiscal year ended December 31, 2002, follow:

Jan. 1 Beginning Inventory 775 units @ $52/unit
Jan. 10 Purchase 600 units @ $53/unit
Feb. 13 Purchase 225 units @ $54/unit
Jul. 21 Purchase 285 units @ $55/unit
Aug. 5 Purchase 450 units @ $56/unit

Mercado Company uses a perpetual inventory system. Its inventory had a selling price of $115 per unit, and it entered into the following current-year sales transactions:

Feb. 15 Sales 515 units @ $115/unit
Aug. 10 Sales 275 units @ $115/unit

Required:

  1. Compute cost of goods available for sale and the number of units available for sale.

  2. Compute the number of units in ending inventory.

  3. Compute the cost assigned to ending inventory using (a) FIFO; (b) LIFO; and (3) Weighted-Average

  4. Compute the gross profit earned by the company for each of the costing methods in part 3.

Analysis Component

  1. If Mercado Company's manager earns a bonus based on a percent of gross profit, which method of inventory costing will the manager likely prefer?