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The management of Blue Spruce Corp. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2022,
The management of Blue Spruce Corp. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2022, the accounting records show these data.
Inventory, January 1 (9,520 units) | $ 31,416 | |
Cost of 127,290 units purchased | 474,422 | |
Sales revenue on 94,700 units | 723,700 | |
Operating expenses | 113,570 |
Units purchased consisted of 35,360 units at $3.50 on May 10, 56,860 units at $3.70 on August 15, and 35,070 units at $4.00 on November 20. Income taxes are 30%.
FIFO LIFO $ $ > > > $ $ Answer the following questions for management. (1) Which inventory cost flow method produces the inventory amount that most closely approximates the amount that would have to be paid to replace the inventory? Averag-cost method (2) Which inventory cost flow method produces the net income amount that is a more likely indicator of next period's net income? Averag-cost method (3) Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Averag-cost method (4) How much more cash will be available under LIFO than under FIFO? $ (5) How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO? $Step by Step Solution
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