1. Assuming that sales for 2018 require 7,000 kg of Rtu330, calculate the cost of goods sold and the end-of-year inventory for 2018 if Tamar Chemicals follows the advice of the chief accountant.
2. Recalculate cost of goods sold and the end-of-year inven- tory if the company follows the purchasing agent's advice.
3. The CEO wants to know what discretion the company has to vary income in 2018 by planning its purchases of Rtu330. If the firm follows the chief accountant's policy, net income for 2018 will be $60,000. What is the range of net income that the company can report by managing pur- chases of Rtu330? Assume a tax rate of 30%.

Cancel Case Study 9-1 LIFO Accounting at Tamar Chemicals Purchasing Policy Under LIFO Tamar Chemicals sells chemical compounds made from a mate- rial known as Rtu330. The company has used LIFO as its inven- tory cost-flow assumption since it was founded 25 years ago. The inventory of Rtu330 on December 31, 2017 com- prised 4,000 kg, costing $161,200. Most of the cost comes from inventory acquired in previous years, as shown in the fol- lowing table: 7000 kg of Rtu330. Current policy is to maintain a stock of 4000 kg. Because of the pending price drop, the purchasing agent suggests that the company should decrease inventory to 600 kg by the end of 2018 and replenish it to the desired level of 4,000 kg early next year. The chief accountant disagrees. If inventory falls to 600 kg at the end of 2018, the consumption of old, low-cost LIFO layers will cause cost of goods sold to be unusually low. As a result, the company will face a high income tax liability. The chief accountant suggests that Tamar plan 2018 purchases to maintain an end-of-year inventory of 4,000 kg. 2017 Year-end inventory Year acquired Purchase price per kg kg Cost 2008 $30 2,000 200 2013 46 2014 48 400 $60,000 9,200 19,200 72,800 $161,200 2017 52 1,400 4,000 Required 1. Assuming that sales for 2018 require 7,000 kg of Rtu330, calculate the cost of goods sold and the end-of-year inventory for 2018 if Tamar Chemicals follows the advice of the chief accountant. 2. Recalculate cost of goods sold and the end-of-year inven- tory if the company follows the purchasing agent's advice. 3. The CEO wants to know what discretion the company has to vary income in 2018 by planning its purchases of Rtu330. If the firm follows the chief accountant's policy, net income for 2018 will be $60,000. What is the range of net income that the company can report by managing pur- chases of Rtu330? Assume a tax rate of 30%. Rtu330 cost $62 per kg throughout most of 2018. It is now late 2018, and prices are not expected to change before the end of the year. But Tamar's purchasing agent expects the price to fall back to $57 early in 2019. Sales for 2018 require Case 9-1: LIFO Accounting at Tamar Chemicals Question 1: Chief Accountant # of Units (kg) 4,000 Price per unit Cosi 161,200 Beginning Inventory Plus: Purchases Less: Sales Equals Ending Inventory LIFO-only sold this year's items 4,000 Question 2: Cost # of Units (kg) Price per unit 4.000 161,200 Beginning Inventory Plus: Purchases Less: Sales Equals Ending Inventory Cost of Good Sold using LIFO Inventory Layer kg Cost 2018 2017 2014 2013 2008 Purchases Sales less units taken from inventory Cost of Good Sold Ending Inventory using LIFO Layer kg Cost Question 3: Step 1: Since selling the oldest inventory first, gives you a lower Cost of Good Sold, the income will be higher. The highest income that can be reported is to use all of your "old" inventory - bring the ending inventory down to "O" units, so you need to compute the cost of Goods Sold with this assumption first. # of Units (kg) Price per unit Cost Cost of Gex Sold using LIPO Inventory Beginning Inventory 4.000 161,200 Layer kg Cost Plus: Purchases 2018 Less: Sales 2017 Fquals Ending Inventory 2014 2013 2008 Step 2 Calculate the difference in Cost of Goods Sold from #1 and at "O" Ending Inventoy Chief Accountant "Finding Inventory at O Difference Cost of Goods Sold This change is before tax so you have calculate the after tax amount below. Step 3: Calculate after tax difference in Income Difference from Step 2 multiplied by(1-3) Step 4: Calculate Range in Net Income $60.000 minimum Chief Accountancs Policy maximum (must add additional income to Chiel Accountant's Net Income) With Ending Inventory of