Suppose a division of New York instruments that sells computer microchips has these inventory records for January 2015:

Date Item Quantity Unit Cost Total Cost

Jan 1 Beg. Inventory 180 unit $15 $2700

Jan 6 Purchase 70 unit 17 1190

Jan 21 Purchase 200 unit 17 3400

Jan 27 Purchase 90 unit 18 1620

Requirement 1: Prepare the January income statement, showing amounts for LIFO, average, and FIFO cost. Label the bottom line "Operating Income." Round average cost per unitto three decimal places and all other figures to whole-dollar amounts. Show your computations.

Begin by preparing the income statement using LIFO, then average, and finally FIFO cost.

New York Instruments Inc.

Income Statement for Microchip

Month Ended January 31, 2015

LIFO Average FIFO

Sales Revenue _________ _________ __________

Cost of goods sold _________ _________ __________

Gross profit _________ _________ __________

Operating expenses _________ _________ ___________

Operating income _________ _________ ___________

Requirement 2: Suppose you are the financial vice president of New York Instruments. Which Method will you use if your motive is to...

A) Minimize income taxes?

Use ____________[FIFO,LIFO, or Average.] to minimize income taxes. Operating income under this method is the lowest when inventory unit costs are ____________,[Decreasing or Increasing] as they are in this case. (If inventory unit costs were going the opposite direction, income under _____________ [FIFO, LIFO, or Average] would be lowest.)

B) report the highest income?

Use ____________ [FIFO, LIFO, or Average] to report the highest operating income. Income under this method is highest when inventory unit costs are ___________ [Increasing or decreasing], as in this situation.

C) Report operating income between the extremes of FIFO and LIFO?

Use ____________ [FIFO, LIFO, or Average] to report anoperating income amount between the FIFO and LIFO extremes. This is true in this situation and in others when inventory unit costs are ___________ [increasing, decreasing, or both].

D) Report inventory on the balance sheet at the most current cost?

Use _____________ [FIFO, LIFO, or Average] to report inventory on the balance sheet at the most current cost. The ___________ [most current or oldest] inventory costs are expensed as cost of goods sold, leaving in ending inventory the __________ [most current or oldest] costs of the period.

E) Use ____________ [FIFO, LIFO, or Average] to attain the best measure of net income. This method produces the best current expense recognition by matching the _________ [most current or oldest] expense with current revenue. The __________ [most current or oldest] inventory costs are expensed as cost of goods sold.