Analyze effect of cost flow method on financial statements and inventory turnover ratio. (LO 2, 4, 6)
Question:
Analyze effect of cost flow method on financial statements and inventory turnover ratio. (LO 2, 4, 6)
Green Bay Cheese Company is considering changing inventory cost flow methods. Green Bay's primary objective is to maximize profits. Currently, the firm uses weighted average cost. Data for 2006 are provided.
Operating expenses were \(\$ 120,000\) and the company's tax rate is \(30 \%\).
\section*{Required}
a. Prepare the multiple-step income statement for 2006 using each of the following methods:
1. FIFO periodic 2. LIFO periodic
b. Which method provides the more current balance sheet inventory balance at December 31, 2006? Explain your answer.
c. Which method provides the more current cost of goods sold for the year ended December 31, 2006? Explain your answer.
d. Which method provides the better inventory turnover ratio for the year? Explain your answer.
e. In order to meet Green Bay's goal, what is your recommendation to Green Bay Cheese Company? Explain your answer.
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