Lumber Supply ASA is a manufacturer of specialty building products. The company, through its partnership in the Trus Joist MacMillan joint venture, develops and manufactures engineered lumber. This product is a high-quality substitute for structural lumber, and uses lower-grade wood and materials formerly considered waste. The company also is majority owner of the Outlook Window Partnership, which is a consortium of three wood and vinyl window manufacturers.
Following is Lumber Supply's International's adapted income statement and information concerning inventories from its statement of financial position.
Lumber Supply ASA
Sales revenue............................................‚¬618,876,000
Cost of goods sold.......................................475,476,000
Gross profit...............................................143,400,000
Selling and administrative expenses..................102,112,000
Income from operations..................................41,288,000
Other expense.............................................24,712,000
Income before income taxes.............................16,576,000
Income taxes................................................7,728,000
Net income................................................‚¬ 8,848,000
Inventories. Inventories are valued at the lower-of-cost-or-net realizable value and include material, labor, and production overhead costs. Inventories consisted of the following:

The average-cost (AC) method is used for determining the cost of lumber, veneer, Microllam lumber, LSI joists, and open web joists. Approximately 35 percent of total inventories at the end of the current year were valued using the AC method. The first-in, first-out (FIFO) method is used to determine the cost of all other inventories.
Instructions
a. How much would income before taxes have been if FIFO costing had been used to value all inventories?
b. If the income tax rate is 46.6%, (1) what would income tax have been if FIFO costing had been used to value all inventories? (2) What is the difference in net income between the two methods? (3) In your opinion, is this difference in net income between the two methods material? Explain.
c. Does the use of a different costing system for different types of inventory mean that there is a different physical flow of goods among the different types of inventory? Explain.

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Current Year Prior Year Finished goods Raw materials and work in progress €27,512,000 €23,830,000 34,363,000 33,244,000 61,875,000 57,074,000 (5,263,000) (3,993,000) Reduction to average-cost €56,612,000 €53,081,000