FIFO		Average
Sales		$ 546,000		$ 546,000
Cost of goods sold		enter a dollar amount		enter a dollar amount
Gross profit		enter a total amount for the first part		enter a total amount for the first part
Operating expenses		214,000		214,000
Income before income tax		enter a total amount for the second part		enter a total amount for the second part
Income tax expense ( 30%)		enter a dollar amount		enter a dollar amount
Net income		$ enter a total amount		$ enter a total amount

Explain whether the comparative net incomes of each cost formula determined in part (c) will be expected to increase, decrease, or not change if (1) costs fall, and (2) costs remain stable.

(1)		Currently, as shown in (a) above, FIFO results in a select an option lowerhigher net income than the average cost formula. This is anticipated when costs are select an option fallingrising, as is the case above. If instead costs select an option risefall, the use of the FIFO cost formula will result in a select an option lowerhigher net income compared to the average cost formula. The cost of goods sold will then be composed of select an option higherlower costs than the average cost formula and this will generate select an option lowerhigher net incomes.
(2)		If costs remain stable, the two cost formulas select an option will notwill produce the same net incomes.