White Dove Company began operations in 2012 by selling a single product. Data on purchases and sales…


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CP 7-3 Costing inventory White Dove Company began operations in 2012 by selling a single product. Data on purchases and sales for the year were as follows: Purchases: Date Units Purchased Unit Cost Total Cost 6-Apr 62,000 $12.20 $756,400 18-May 66,000 13 858,000 6-Jun 80,000 13.2 1,056,000 10-Jul 80,000 14 1,120,000 10-Aug 54,400 14.25 775,200 25-Oct 25,600 14.5 371,200 4-Nov 16,000 14.95 239,200 10-Dec 16,000 16 256,000 400,000 $5,432,000 Sales: April 32,000 units May 32,000 June 40,000 July 48,000 August 56,000 September 56,000 October 36,000 November 20,000 December 16,000 Total units 336,000 Total sales $5,200,000 On January 4, 2013, the president of the company, Joel McLees, asked for your advice on costing the 64,000-unit physical inventory that was taken on December 31, 2012. Moreover, since the firm plans to expand its product line, he asked for your advice on the use of a perpetual inventory system in the future. 1. Determine the cost of the December 31, 2012, inventory under the periodic system, using the (a) first-in, first-out method, (b) last-in, first-out method, and (c) average cost method. 2. Determine the gross profit for the year under each of the three methods in (1). 3. a. Explain varying viewpoints why each of the three inventory costing methods may best reflect the results of operations for 2012. b. Which of the three inventory costing methods may best reflect the replacement cost of the inventory on the balance sheet as of December 31, 2012? c. Which inventory costing method would you choose to use for income tax purposes? Why? d. Discuss the advantages and disadvantages of using a perpetual inventory system. From the data presented in this case, is there any indication of the adequacy of inventory levels during the year?

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