Part #2

Determine what inventory cost flow assumption (weighted average, FIFO and/or LIFO) would be best
suited for valuing inventory near the current replacement cost. You will make your analysis based on
the following inventory transactions involving chairs only. Remember that the sales price of chairs is
$180 per unit according to the table in Part 1.

Transaction Goods Price

1/1 Beginning Inventory 120 chairs $120/unit
1/15 Transferred into finished goods 140 chairs $130/unit
3/15 Sold 110 chairs $180/unit
4/15 Transferred into finished goods 100 chairs $140/unit
6/15 Sold 90 chairs $180/unit
7/15 Transferred into finished goods 130 chairs $150/unit
9/15 Sold 120 chairs $180/unit
10/15 Transferred into finished goods 140 chairs $160/unit
12/15 Sold 110 chairs $180/unit
Within your analysis, make sure to include the following:

Briefly discuss the advantages and disadvantages of each inventory costing assumption.
Calculate the cost of goods sold and ending inventory for each cost flow assumption.
Demonstrate which of these should be used to net the highest income during inflationary periods.
Provide justification on what inventory costing assumption you choose.
Record journal entries for each purchase and sales transaction listed.

Your justification should be between 500 to 750 words in length.