The management of Red Robin Co. is reevaluating the appropriateness of using its present inventory cost flow
Question:
Purchases were made quarterly as follows.
Operating expenses were $147,000, and the companys income tax rate is 32%.
Instructions
(a) Prepare comparative condensed income statements for 2014 under FIFO and LIFO.
(Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why?
(2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income? Why?
(3) Which cost flow method (FIFO or LIFO) is more likely to approximate actual physical flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than under FIFO? Why?
(5) Will gross profit under the average-cost method be higher or lower than (i) FIFO and (ii) LIFO? (Note: It is not necessary to quantify youranswer.)
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =...
Step by Step Answer:
Financial and managerial accounting
ISBN: 978-1118016114
1st edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso