Question: Two companies the Lastin Company and the Firstin Company are

Two companies, the Lastin Company and the Firstin Company, are in the scrap metal warehousing business as arch competitors. They are about the same size, and in 20X1 coincidentally encountered seemingly identical operating situations. Only their inventory accounting systems differed. Lastin uses LIFO, and Firstin uses FIFO.
Their beginning inventory was 11,000 tons; it cost $50 per ton. During the year, each company purchased 50,000 tons at the following prices:
• 30,000 @ $60 on March 17
• 20,000 @ $70 on October 5
Each company sold 46,000 tons at average prices of $100 per ton. Other expenses in addition to cost of goods sold, but excluding income taxes, were $600,000. The income tax rate is 40%.
1. Compute net income for the year for both companies. Show your calculations.
2. As a manager, which method would you prefer? Why? Explain fully. Include your estimate of the overall effect of these events on the cash balances of each company, assuming all transactions during 20X1 were direct receipts or disbursements of cash.

View Solution:

Sale on SolutionInn
  • CreatedFebruary 20, 2015
  • Files Included
Post your question