Fifo$-$Lifo and Cash Flow. Due to rising prices for materials, the problem of

using the most appropriate inventory costing method has become very acute.

With the wide variety of methods available for accounting of inventories, it is

important to select one that will be the most beneficial for a company. To illus$-$

trate, assume that two companies are almost identical except that one uses fifo

costing and the other uses lifo costing. Both companies have a beginning inven$-$

tory of $200$ units@ $$2$ per unit. The ending inventory is $240$ units, for which

the current cost per unit is $$2\mathrm{.}40.$ Sales during the fiscal period totaled $180$

items @ a selling price of $$3\mathrm{.}60.$ The income tax rate is $50\%$ for both companies.

Required: $(1)$ The amount of total materials available for sale.

$(2)$ Income statements showing after$-$tax earnings for both companies.

$(3)$ Cost assigned to the ending inventory based on the fifo and lifo costing

methods.

$(4)$ The cash position at the end of the fiscal year, assuming that all transac$-$

tions, materials purchases, sales, and income taxes were paid for in cash.

$(5)$ A brief evaluation of the results.

$($Based on a Haskins & Sells Newsletter$)$