Evaluating the Choice among Three Alternative Inventory Methods Based on Cash
Flow Effects Following is partial information for the income statement of Lumber Company under three different inventory costing methods, assuming the use of a periodic inventory system:

Required:
1. Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.
2. Prepare an income statement through pretax income for each method.
3. Rank the three methods in order of income taxes paid (favorable cash flow) and explain the basis for yourranking.

Transcribed Image Text:

FIFO Average Cost LIFO Cost of goods sold Beginning inventory (400 units) Purchases (475 units) Goods available for sale Ending inventory (545 units) Cost of goods sold Sales, 330 units; unit sales price, $50 Expenses, $1,700 $11,200 $11,200 $11,200 17,100 17.100 17,100