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I was wondering how to calculate the Return on Asset ratio, using both the FIFO and LIFO method and using those ratios to come up
I was wondering how to calculate the Return on Asset ratio, using both the FIFO and LIFO method and using those ratios to come up with a suggestion. Thank you
The following information is extracted from the draft financial statements of Company ABC, a US-based manufacturing company, for the year ended 31 December 2022. The company is currently adopting First in, first out (FIFO) to record the inventory cost. All figures are in thousands except price per unit. The accountant recommends switching the inventory costing method from First in, First out (FIFO) to Last in, First Out (LIFO) for 2022 to better reflect the rising inventory cost during the year. At the moment, the company uses FIFO for income tax purposes. Upon switching over to LIFO, the company would need to use LIFO for income tax purposes. Additional information - The manager's bonus plan is specified below: the manager will receive a bonus only if the company's ROA ratio (i.e., profit after tax over ending total assets) is between 0.4 and 0.6 , and the higher ROA, the more bonus the manager will receive. - The long-term debt agreement requires EBIT to be a minimum of 3 times of interest expense. (c) Do you think the manager would welcome the accountant's recommendation? Briefly explain and show your workings. Round your answer to 3 decimal places. [Maximum words: 250]Step by Step Solution
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