Choosing LIFO versus FIFO When Costs Are Rising and Falling
Use the following information to complete this exercise: sales, 550 units for $12,500; beginning inventory, 300 units; purchases, 400 units; ending inventory, 150 units; and operating expenses, $4,000. Begin by setting up the following table and then complete the requirements that follow.
1. Complete the table for each situation. In Situations A and B (costs rising), assume the following: beginning inventory, 300 units at $12 _ $3,600; purchases, 400 units at $13 _ $5,200. In Situations C and D (costs falling), assume the opposite; that is, beginning inventory, 300 units at $13 _ $3,900; purchases, 400 units at $12 _ $4,800. Use periodic inventory procedures.
2. Describe the relative effects on Income from Operations as demonstrated by requirement 1 when costs are rising and when costs are falling.
3. Describe the relative effects on Income Tax Expense for each situation.