Question
a company uses the FIFO inventory cost flow assumption. In a year of rising costs and prices, the firm reported net income of $226,363 and
a company uses the FIFO inventory cost flow assumption. In a year of rising costs and prices, the firm reported net income of $226,363 and average assets of $1,409,840. If the company had used the LIFO cost flow assumption in the same year, its cost of goods sold would have been $41,020 more than under FIFO, and its average assets would have been $39,240 less than under FIFO.
Calculate the firm's ROI under each cost flow assumption (FIFO and LIFO). (Enter your answers as percentages rounded to 1 decimal place (i.e., 12.2%).)
b. Suppose that two years later costs and prices were falling. Under FIFO, net income and average assets were $280,663 and $1,694,200, respectively. If LIFO had been used through the years, inventory values would have been $47,940 less than under FIFO, and current year cost of goods sold would have been $16,582 less than under FIFO. Calculate the firm's ROI under each cost flow assumption (FIFO and LIFO).
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