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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