Fashion Haven recently opened a retail clothing shop in Australia. The owner is considering whether a perpetual or periodic inventory system should be used. The company also has an item of inventory with details below:

Date

Item

Quantity

Unit cost

May

1

Opening balance

21

105

5

Purchase

5

102

7

Purchase

15

97

17

Purchase

35

95

31

Inventory on hand

16

Sales revenue for May

10,800

Requirements:Write a business report (about 600 words) critically addressing the issues below:

  • Explain the essential differences between perpetual and periodic inventory systems. With the nature of Fashion Haven’s business, which system would you suggest to the owner? Why?
  • Using a spreadsheet, calculate the Ending Inventory and Cost of Goods Sold for May, using the average cost, LIFO, and FIFO methods. Present your answers in both normal and formula views with rows and column headings.
  • Taking into account the context of the firm’s operation and the current purchase price, what method would you suggest to the owner, why?