Case 1: T J International

T J International was founded in 1969 as Trus Joist International. uarters in Boise, Idaho. tnership in the Joist MacMillan joiufactures enginelumber. ty substitute for structural lumber and uses lower-grade wood and mas, has its headqy building producttnd manevelops at venture, dnred ewaste. merly considered terials forturer of specialhe firm, a manufacTts parthrough ihe company, Trus Tt is a high-qualihis producTturers.three wood and vinyl window manufactium of tnership, which is a consortlook Window Parjority owner of the Ouhe company also is maT

Following is T J International's adapted income statement and information concerning inventories from its annual report.

T J International
	Sales	$618,876,000
	Cost of goods sold	475,476,000
	Gross profit	143,400,000
	Selling and administrative expenses	102,112,000
	Income from operations	41,288,000
	Other expense	24,712,000
	Income before income tax	16,576,000
	Income taxes	7,728,000
	Net income	$8,848,000

Inventories. Inventories are valued at the lower of cost or market and include material, labor, and production overhead costs. Inventories consisted of the following:

	Current Year	Prior Year
Finished goods	$27,512,000	$23,830,000
Raw materials and work-in-progress	34,363,000	33,244,000
	61,875,000	57,074,000
Reduction to LIFO cost	(5,263,000)	(3,993,000)
	$56,612,000	$53,081,000

The last-in, first-out (LIFO) method is used for determining the cost of lumber, veneer, Microllam lumber, TJI joists, and open web joists. Approximately 35 percent of total inventories at the end of the current year were valued using the LIFO method. The first-in, first-out (FIFO) method is used to determine the cost of all other inventories.

Instructions

a. How much would income before taxes have been if FIFO costing had been used to value all inventories?

b. If the income tax rate is 46.6%, what would income tax have been if FIFO costing had been used to value all inventories? In your opinion, is this difference in net income between the two methods material? Explain.

c. Does the use of a different costing system for different types of inventory mean that there is a different physical flow of goods among the different types of inventory? Explain.