Parker Company uses a perpetual inventory system. It entered into the following calendar-year 2005 purchases and sales transactions

Date Activities Units Acquired at Cost Units Sold at Retail

Jan. 1 Beginning inventory . . . . . . . 600 units @ $44/unit

Feb. 10 Purchase . . . . . . . . . . . . . . . 200 units @ $40/unit

Mar. 13 Purchase . . . . . . . . . . . . . . . 100 units @ $20/unit

Mar. 15 Sales . . . . . . . . . . . . . . . . . . 400 units @ $75/unit

Aug. 21 Purchase . . . . . . . . . . . . . . . 160 units @ $60/unit

Sept. 5 Purchase . . . . . . . . . . . . . . . 280 units @ $48/unit

Sept. 10 Sales . . . . . . . . . . . . . . . . . . 200 units @ $75/unit

Totals . . . . . . . . . . . . . . . . . 1,340 units 600 units

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, (c) specific identification

(Note: The units sold consist of 500 units from beginning inventory and 100 units from the March 13 purchase), and (d) weighted average.

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

Analysis Component

5. If the company’s manager earns a bonus based on a percent of gross profit, which method of inventory costing will the manager likely prefer?

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