Sarah Perreault Corp

Sarah Perreault Corp. sold 6,400 units of its product at $45 per unit in year 2013 and incurred operating expenses of $6 per unit in selling them. It began the year with 600 units in inventory and the following transactions took place during the fiscal year:DATE ACTIVITY UNITS PRICEJan 1 Beginning inventory 600 $18 per unitFeb 20 Purchase 1,500 $19 per unitMay 16 Purchase 700 $20 per unitOct 3 Purchase 400 $21 per unitDec 11 Purchase 3,300 $22 per unitFeb 22 Sale 750 $45 per unitMay 15 Sale 890 $45 per unitSep 11 Sale 775 $45 per unitDec 28 Sale 3,985 $45 per unit Problem #1Prepare comparative income statements similar to the ones found in your text at Exhibit 6.8 for the three inventory cost flow methods of FIFO, LIFO and weighted average. The company uses a perpetual inventory system and its income tax rate is 30%.In calculating cost of sales, be sure to demonstrate the flow of inventory during the year and prove your ending inventory amount by using the inventory cost formula (BI + Purchases = GA – EI = CGS).Problem #2Discuss in 500 words or less how the financial results from using the three alternative methods would change if Sarah Perreault had been experiencing declining costs in its purchases of inventory?Problem #3What advantages and disadvantages are offered by using LIFO and FIFO? Assume the continuing trend of increasing costs.