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  3. fifo-lifo and cash flow. due to rising prices for

Fifo-Lifo and Cash Flow. Due to rising prices for materials, the problem of using...

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Accounting

Fifo-Lifo and Cash Flow. Due to rising prices for materials, the problem of
using the most appropriate inventory costing method has become very acute.
With the wide variety of methods available for accounting of inventories, it is
important to select one that will be the most beneficial for a company. To illus-
trate, assume that two companies are almost identical except that one uses fifo
costing and the other uses lifo costing. Both companies have a beginning inven-
tory of 200 units@ $2 per unit. The ending inventory is 240 units, for which
the current cost per unit is $2.40. Sales during the fiscal period totaled 180
items @ a selling price of $3.60. The income tax rate is 50% for both companies.
Required: (1) The amount of total materials available for sale.
(2) Income statements showing after-tax earnings for both companies.
(3) Cost assigned to the ending inventory based on the fifo and lifo costing
methods.
(4) The cash position at the end of the fiscal year, assuming that all transac-
tions, materials purchases, sales, and income taxes were paid for in cash.
(5) A brief evaluation of the results.
(Based on a Haskins & Sells Newsletter)
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