Applying and Analyzing Inventory Costing Methods
At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $32. A summary of purchases during the current period follows.

Unit cost is $32

Units Unit Cost Cost
Beginning Inventory 1,000 $32 $32,000
Purchase #1 1,800 34 61,200
Purchase #2 800 38 30,400
Purchase #3 1,200 41 49,200
During the current period, Chen sold 2,800 units.

(a) Assume that Chen uses the first-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance. Use the financial statement effects template to record cost of goods sold for the period.
Ending inventory balance $Answer
Cost of goods sold $Answer

Use negative signs with answers, when appropriate.

Balance Sheet

Transaction Cash Asset +
Noncash

Assets

= Liabilities +
Contributed

Capital

+
Earned

Capital

Record FIFO cost of goods sold Answer Answer Answer Answer Answer
Income Statement


Revenue
-
Expenses
=
Net

Income

Answer Answer Answer

(b) Assume that Chen uses the last-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance.
Ending inventory balance $Answer
Cost of goods sold $Answer

(c) Assume that Chen uses the average cost method. Compute both cost of good sold for the current period and the ending inventory balance.
Ending inventory balance $Answer
Cost of goods sold $Answer

(d) Which of these three inventory costing methods would you choose to:

1. Reflect what is probably the physical flow of goods?
LIFO FIFO Average Cost
2. Minimize income taxes for the period?
LIFO FIFO Average Cost
3. Report the largest amount of income for the period?
LIFO FIFO Average Cost