Question

Heinz Company began operations on January 1, 2014, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:

Final Inventory 2014 2015

FIFO $640,000 $ 712,000
LIFO $560,000 $636,000
Net Income
(computed under the FIFO method) $980,000 $1,130,000

Based on the above information, a change to the LIFO method in 2015 would result in net income for 2015 of

a. $1,170,000
b. $1,130,000
c. $1,054,000
d. $1,050,000

Answer 1

c. $1,054,000

Step-by-step explanation:

The computation of the net income due to change in the LIFO method is shown below:

= Net income under FIFO method for 2015 - (Inventory under FIFO method for 2015 - Inventory under FIFO method for 2015)

= $1,130,000 - ($712,000 - $636,000)

= $1,1,30,000 - $76,000

= $1,054,000

All other information which is given is not relevant. Hence, ignored it