Mills, Inc., sold 120,000 cases of glue at $20 per case during 2014. Its beginning inventory consisted of 20,000 cases at a cost of $12 per case. During 2014, it purchased 60,000 cases at $14 per case and, later, 50,000 cases at $15 per case. Operating expenses were $550,000, and the applicable income tax rate was 30 percent.
1. Using the periodic inventory system, compute net income using the FIFO method and the LIFO method for costing inventory. Which alternative produces the larger cash flow?
2. The company is considering a purchase of 10,000 cases at $15 per case just before the year end. What effect on net income and on cash flow will this proposed purchase have under each method?