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The management of Bird Inc. asks your help in determining the comparative effects of the FIFO, LIFO, and average weighted cost flow methods. For 2001,

The management of Bird Inc. asks your help in determining the comparative effects of the FIFO, LIFO, and average weighted cost flow methods. For 2001, the accounting records show these data: Inventory, January 1 (10,000 units) $35,000 Cost of 120,000 units purchased 502,000 Selling price of 95,000 units sold 665,000 Operating expenses 120,000 Units purchased consisted of 40,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 20,000 units at $4.50 on November 200l. Income taxes are 28%. Requirements (a) Prepare a comparative condensed income statements for 2001 under FIFO, LIFO, and average weighted cost flows. (Show computations of ending inventory). (b) Answer the following questions for management in the form of a short business memo.. 1. Which inventory cost flow method maximizes net income? Why? 2. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why? 3. Which inventory cost flow method maximizes the companys cash flow? Why?

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