Question

The following information pertains to the inventory transactions for La Madeline Company for Year XXXX. January 1 Beginning inventory 500 units @$20 per unit April 1 Purchased inventory 2,500 units @ $25 per unit October 1 Purchased inventory 800 units @ $26 per unit During the year, La Madeline sold 3,400 units of inventory @ $50 per unit and incurred $16,000 of operating expense. La Madeline currently uses the FIFO method but is considering a change to LIFO. Assume that all transactions during the year are cash transactions. Further assume an income tax rate of 30% Required: (6 X 2 = 12 points) a) Calculate the Net income after taxes that would be reported for Year XXXX under FIFO. b) Calculate the Net income after taxes that would be reported for Year XXXX under LIFO. c) How much income tax savings can be achieved by the proposed switch over to LIFO from FIFO? d) Calculate the cash flow from operating activities assuming FIFO is followed. e) Calculate the cash flow from operating activities assuming LIFO is followed. f) Calculate the cash flow from operating activities assuming that La Madeline follows weighted average costing method.

Answer 1