The management of Felipe Inc. is reevaluating the appropriateness of using its present inventory cost fl ow method, which is average-cost. The company requests your help in determining the results of operations for 2019 if either the FIFO or the LIFO method had been used. For 2019, the accounting records show these data:

Operating expenses were $130,000, and the company’s income tax rate is 40%.
Instructions

(a) Prepare comparative condensed income statements for 2019 under FIFO and LIFO.
(Show computations of ending inventory.)

(b) Answer the following questions for management.
(1) Which cost fl ow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why?
(2) Which cost fl ow method (FIFO or LIFO) produces the more meaningful net income? Why?
(3) Which cost fl ow method (FIFO or LIFO) is more likely to approximate the actual physical fl ow of goods? Why?
(4) How much more cash will be available for management under LIFO than under FIFO? Why?
(5) Will gross profi t under the average-cost method be higher or lower than FIFO?
Than LIFO? (Note: It is not necessary to quantify your answer.)

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Inventories Beginning (7,000 units) Ending (17,000 units) $14,000 Purchases were made quarterly as follows. Quarter Units 1 50,000 40,000 40,000 60,000 190,000 234 Purchases and Sales Total net sales (180,000 units) Total cost of goods purchased (190,000 units) Unit Cost $2.20 2.35 2.50 2.70 Total Cost $110,000 94,000 100,000 162,000 $466,000 $747,000 466,000