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# Effects of Inventory Costing Methods on Income

Problem 7-36
Effects of Inventory Costing Methods on Income
Martin Merchandising has hired you to examine whether the company should use the LIFO or FIFO inventory costing method. The company uses a perpetual inventory system and
has supplied the following information for the month:

Required:
Prepare multi-step income statements under the LIFO and FIFO costing methods.

FIFO LIFO
Sales \$808,500 \$808,500
Cost of goods sold:
beginning inventory \$80,000 \$80,000
purchases \$540,000 \$540,000
goods available for sale \$620,000 \$620,000
less: ending inventory \$157,500 \$140,000
= cost of goods sold \$462,500 \$480,000

gross profit \$346,000 \$328,500

operating expenses \$148,000 \$148,000

income before taxes \$198,000 \$180,500

tax expense \$69,300 \$63,175

net income \$128,700 \$117,325.

#### Solution Preview

See the attached file.

FIFO LIFO
Sales \$808,500 \$808,500
Cost of goods sold:
beginning inventory \$80,000 \$80,000
purchases \$540,000 \$540,000 ...

#### Solution Summary

Your tutorial is in Excel, attached, click in cells to see computations. The schedule shows you a multi-step income statements with all the proper subtotals.

\$2.19