Just as you finished your studies of inventory in BUS $285,$ you received a phone call from Bob. It turns out that he is considering purchasing a property to house his business. He is at the bank and they have indicated it will require the December $31,2023$ financial statements which were recently finalized and also financial statements as at and for the two months ended February $28,2024$ before making a decision about whether to finance the purchase of the property. To help him prepare the required financial statements, Bob has asked you to help him with some inventory issues.

As you are aware, Economy Small Engine Repair uses a periodic inventory system but Bob knows that there are differences in value for inventory if you use a perpetual inventory system with different costing structures. Bob needs to maximize his inventory value for this loan so without $$breaking the rules$,$ he wants to know what happens if inventory records for routine parts that are easily identified like spark plugs and filters are maintained using FIFO and inventory records for things like fasteners and other bulk products are done using weighted average.

Shortly after your telephone conversation, Bob emailed you the following information:

$$ An inventory count was performed on December $31,2023.$ Included in inventory were $50$ spark plugs and filters at a cost of $$1\mathrm{.}25$ each and $80$ liters of oil at a cost of $$2\mathrm{.}50$ per liter.

$$ Due to the bank$$s requirements, another inventory count was performed on February $29,2024.$ On that date, ESER had $85$ spark plugs and filters and $95$ liters of oil in inventory.

The following are the summaries of inventory purchases and uses$/$sales for January $1$ to February $29,2024$:

Spark Plugs and Filters

Date Units Purchased Cost$/$Unit Units Used

January $220$ units

January $950$ units $$1\mathrm{.}30$

January $3040$ units

February $630$ units $$1\mathrm{.}40$

February $2045$ units

February $2760$ units $$1\mathrm{.}50$

ESER has a work$-$order system for each repair and records cost of goods sold immediately upon using the parts.

Bulk Oil

Date Units Purchased Cost$/$Unit Units Sold

January $950$ units

January $23100$ units $$2\mathrm{.}60$

January $3040$ units

February $1350$ units $$2\mathrm{.}75$

February $2845$ units

Note: The number of purchases and uses$/$sales of inventory have been reduced to demonstrate the important inventory accounting concepts, but manage the workload required to respond to the tasks in this lab.

Tasks

$1.$ In class, your BUS $285$ instructor discussed periodic and perpetual inventory systems. To date, you have been using a periodic inventory system for ESER. You decided to review your BUS $285$ notes and prepare a summary of how a perpetual inventory system differs from a periodic inventory system and which type of inventory system would be more appropriate for Bob to use at ESER.

$2.$ In BUS $285,$ you discussed the specific identification, FIFO and average cost inventory cost determination methods. You decided to make some brief notes explaining each of the methods and when they should be used and then decide on the most appropriate method to recommend to Bob for ESER.

$3.$ Based on the information provided above, Bob would like you to determine the February $29,2024$ inventory of Spark Plugs and bulk oil $($in units and dollars$)$ and cost of goods sold for the two$-$month period from January $1$ to February $29,2017$ on these items. He has asked that you provide detailed supporting calculations and round all per unit amounts to the nearest cent and all cost of goods sold and inventory amounts to the nearest dollar.

$4.$ Throughout January and February $2024,$ ESER sold its Spark Plugs and Filters at a price of $$3\mathrm{.}50$ each. Please calculate the gross profit margin on Spark Plugs and Filters. Please express the gross profit margin as a percentage and round the result to two decimal places.

$$

$5.$ As you are using currently using a perpetual inventory system for ESER, you decided to redo the calculations of ending inventory and cost of goods sold for the two products using a periodic inventory system to show Bob the difference and practice what you learned in BUS $285.$ Similar to the work you did above, you plan to provide detailed supporting calculations and round all per unit amounts to the nearest cent and all cost of goods sold and inventory amounts to the nearest dollar.