Question 3 : Inventory ( LIFO Disclosure ) Izachi Zach was hired as CFO of Rankin , Inc . on December 31 2004 Rankin currently uses the LIFO method of costing its inventory . Izachi reviews the process involved in applying the LIFO method and question whether it is cost efficient to continue using I IFO . In order to complete his analysis , Izachi must calculate the net income effects of using the LIFO method relative to the FIFO method . Rankin , Inc . adopted LIFO when it began operations on January 1 2001 . The following information is available from Rankin's accounting records Ending Inventory LIFO FIFO December 31 200 $1 960.000 $2 080, 000 December 31 . 2002 2.500.000 2 840.000 December 31 2003 850.000 3 . 300.000 December 31 2004 3 . 020.000 3 . 420.000 Izachi asks you to help him complete his analysis . He tells you to assume a tax rate of 40% and to ignore present value effects in your calculations . He also tells you that he expects inventory costs and quantities to rise in the foreseeable future . Below are the specific instructions he provides you a . Calculate the total amount of any tax differences associated with the use of LIFO since its adoption on anuary 1 2001 . Be sure to indicate whether more or less tax has been paid as a result of using LIFO b . Calculate the pre - tax income statement tax e ffect associated with using LIFO for the year ended December 31 , 2004 . Be sure to indicate whether reported income is higher or lower when LIFO is used C . Assume the estimated incremental cost of using LIFO ( relative to FIFO ) is approximately $40,000 per year ( before - tax ) . The incremental costs are primarily due to increased recordkeeping co sts . Based on this information and your analysis , would you recommend that the company stops using LIFO ? Show calculations to support your answer and state any relevant assumptions you are making in your recommendation