The board of directors of Ichiro Corporation is considering whether or not it sh

Question

The board of directors of Ichiro Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first-out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following information is available.

Prepare a condensed income statement for the year on both bases for comparative purposes.

Sales 20,200 units @ $70 Inventory, January 1 6,300 units @ 28 Purchases 6,520 units @ 31 10,800 units @ 35 7,510 units @ 42 Inventory, December 31 10,930 units @ ? Operating expenses $281,600

Explanation / Answer

Notes:

Cost of Goods sold = Opening Stock + Purchases = Closing Stock

Under FIFO COGS = (6300*28) + (6520*31 + 10800*35 + 7510*42) - (7510*42 + 2420*35)

= 176400 + 895540 - 400120 = $671820

Under LIFO COGS = (6300*28) + (6520*31 + 10800*35 + 7510*42) - (6300*28 + 4630*31)

= 176400 + 895540 - 319930 = $752010

Income Statement under FIFO Method:($)

Sales (20200 units @ 70) 1414000

Less: Cost of Goods Sold   671820

Gross Profit 742180

Less: Operating expenses 281600

Net Profit 460580

Income Statement under LIFO Method:($)

Sales (20200 units @ 70) 1414000

Less: Cost of Goods Sold   752010

Gross Profit 661990

Less: Operating expenses 281600

Net Profit 380390

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