Inventory valuation and JIT Imashe Manufacturing is in the process of converting to a JIT manufacturing environment. At the beginning of the year, the company had 8,000 units of inventory with a LIFO inventory cost of $86 per unit. During the year the company produced 33,000 units with a total manufacturing cost of $4,620,000. Ending inventory was 1,000 units. Sales revenue was $7,450,000. Marketing and administrative expenses for the year were $1,564,000.

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REQUIRED a. Prepare an income statement for the year. Assume a tax rate of 40%. b. Compute the current-year earnings difference that apparently resulted from depleting the LIFO "base stock" inventory. c. After reviewing the data presented in parts a and b, the company president was upset that the income tax obligations for the year were over $100,000 higher than if the company had produced enough units to maintain the LIFO base stock. He comments that, "This JIT stuff may not be all that great an idea. I know we could have produced more and eliminated those extra taxes, and we would even have 7,000 more units in ending inventory to work with." Discuss the issues that may be involved in evaluating the data reported in parts a and b and respond to the president's comments.