Watson Pty Ltd began operations on 1 July. It uses a perpetual inventory system. During July the business had the following purchases and sales:
Date Units Unit cost Sales units
July 1 5 $90
11 4 $99
21 3 $106
(a) Use an EXCEL spreadsheet to reproduce the above table and determine the ending inventory under a perpetual inventory system using (1) FIFO and (2) average cost. (It is advisable to prepare a separate table for each method.)
(b) Explain which costing method produces the highest cost allocation to ending inventory and what difference each method would make to the profit reported by Watson Pty. Ltd.? Commentary should be brief (approx 75-100 words).