Determine the cash flow from operating activities, using each of the three cost flow assumptions…

Effect of inventory cost flow (FIFO, LIFO, and weighted average) on gross margin

The following information pertains to Boone Company for 2009.

Beginning inventory

70 units @ $26

Units purchased

280 units @ $30

Ending inventory consisted of 30 units. Boone sold 320 units at $40 each. All purchases and sales were made with cash.

Required

a. Compute the gross margin for Boone Company using the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average.

b. What is the dollar amount of difference in net income between using FIFO versus LIFO? (Ignore income tax considerations.)

c. Determine the cash flow from operating activities, using each of the three cost flow assumptions listed in Requirement a. Ignore the effect of income taxes. Explain why these cash flows have no differences.

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