Blago Wholesale Company began operations on January 1, 2017, and uses the average cost method in costing its inventory. Management is contemplating a change to the FIFO method in 2018 and is interested in determining how such a change will affect net income. Accordingly, the following information has been developed:
____________________________________2017________________2018
Final inventory:
Average cost.................................$150,000.....................$255,000
FIFO...............................................160,000......................270,000
Condensed income statements for Blago Wholesale appear below:
_______________________________________________2017________________2018
Sales..........................................................$1,000,000.................$1,200,000
Cost of goods sold.............................................600,000.....................720,000
Gross profit......................................................400,000.....................480,000
Selling, general, and administrative............................250,000.....................275,000
Net income...............................................................$ 150,000..................$ 205,000
Required:
Based on this information, what would 2018 net income be after the change to the FIFO method? Ignore any income tax effects of this change in accounting method.