EFFECT OF INVENTORY COSTING METHODS ON TAXES. Elmwood Company sells lawn mowers to retail customers. Elmwood obtains the product directly from the manufacturer. Since lawn mowers are fairly bulky items, Elmwood had found it convenient to use the specific identification method of accounting. However, sales volume has increased and Elmwood is now considering a change in inventory method. Data for the current year, using the periodic system, are as follows:

REQUIRED:
1. Compute the cost of goods sold and the cost of ending inventory, using the FIFO, LIFO, and weighted average methods.
2. If Elmwood’s tax rate is 30%, how much cash would be saved in the current year by selecting the inventory method that produces the lowest gross margin relative to the other two methods? “

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UNITS COST PER UNIT TOTAL COST Beginning inventory 15 $108 $ 1,620 Purchase 1 45 120 5,400 Purchase 2 60 130 7,800 Purchase 3 80 140 11,200 Purchase 4 100 142 14,200 Goods available for sale 300 $40,220 Units sold 280 Ending inventory 20