Comparison of Inventory Methods (Alternates are 7-56 and 7-67.) Texas Instruments is a major producer of semiconductors and other electrical and electronic products. Semiconductors are especially vulnerable to price fluctuations. The following are from the company's annual report ($ in millions): December 31 2002 2001 Inventories $790 $751 Texas Instruments uses a variety of inventory methods, but for this problem assume it uses only FIFO. Net revenues for the fiscal year ended December 31, 2002, were $8,383 million. Cost of revenues was $5,313 million. Assume Texas Instruments had the accompanying data concerning one of its semiconductors. Assume a periodic inventory system. In Balance Out December 31, 2001 80 $5400 February 25, 2002 50 $6 $ 300 March 29 May 28 June 7 60* 80 $7 $ 560 90* November 20 December 15 Total December 31, 2002 90 $8 $720 50* 220 $1,580 200 100 @ ? *Selling prices were $10, $12, and $14, respectively. 60 $10 $ 600 90121,080 50 @ 14 = 700 Total sales 200 $2,380 Summary of costs to account for: Beginning inventory Purchases Cost of goods available for sale Other expenses for this product Income tax rate, 40% $ 400 1,580 $1,980 $ 600 1. Prepare a comparative income statement for the 2002 fiscal year for the product in question. Use the FIFO, LIFO, and weighted-average inventory methods. 2. By how much would income taxes have differed if Texas Instruments had used LIFO instead of FIFO for this product? 3. Suppose Texas Instruments had used the specific identification method. Compute the gross margin (or gross profit) if the ending inventory had consisted of

(a) 90 units @ $8 and 10 units @ $7; and

(b) 60 units @ $5 and 40 units @ $8.