Question

In: Accounting

March 1 purchase 100 units $50 each March 5 purchase 400 units $55 each March 9...

March 1 purchase 100 units $50 each

March 5 purchase 400 units $55 each

March 9 sales 420 $85 each

March 18 purchase 120 units $60

March 25 purchase 200 units $62

March 29 sales 160 units $95

1. The CEO has asked you to help her decide whether to use LIFO or FIFO for inventory costing. Compute the gross profit earned by the company for both LIFO and FIFO.
2. The CEO’s bonus is calculated using net income before income taxes. If the CEO wishes to maximize her bonus, which of the following methods would you recommend?
3. Alternatively, the CEO desires the method that minimizes income taxes paid by the company in the current year. If income taxes are based on a percentage of net income, which method would you recommend to the CEO?

Perpetual

Solutions

Expert Solution

Part 1)

Part 2)

Gross profit will be maximum in FIFO leading to maximum net income before taxes as such FIFO method would be recommended to maximise the bonus of the CEO.

Part 3)

Gross profit will be mimimum in LIFO leading to minimum net income before taxes and less income tax payable such LIFO method would be recommended to mimimise income tax payable.

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ekkarill92 answered 1 year ago
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