Lanier Company began operations on January 1, 2012, and uses the FIFO method in

Question

Lanier Company began operations on January 1, 2012, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:

Final Inventory               2012              2013

FIFO                              $320,000       $360,000

LIFO                                240,000         300,000

Net Income                     500,000          550,000

(Computed under the FIFO method)

Based upon the above information, a change to the LIFO method in 2013 would result in net income for 2013 of:

a. $490,000

b. $550,000

c. $570,000

d. $610,000

Explanation / Answer

Hi,

Please find the detailed solution as follows:

Net Income Under LIFO Method = Net Income for 2013 Computed Under FIFO Method - (Final Inventory for 2013 Under FIFO - Final Inventory for 2013 Under LIFO) = 550000 - (360000 - 300000) = 490000

Option A (490000) is the correct answer.

Thanks.

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