Question

Heinz Company began operations on January 1, 2020, 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
2017 2018
FIFO $640,000 $712,000
LIFO $560,000 $636,000
Net Income
(computed under the FIFO method) $980,000 $1,030,000

Based on the above information, a change to the LIFO method in 2020 would result in net income for 2018 of ________.

a. $1,070,000
b. $1,030,000
c. $954,000
d. $950,000

Answer 1

Answer: $954,000

Step-by-step explanation:

Thw difference in the final inventory between the FIFO and the LIFO method in 2018 will be:

= $712,000 - $636,000

= $76,000

Then, based on the above information, a change to the LIFO method in 2018 would result in net income for 2018 of:

Net income as per FIFO = $1,030,000

Less: Decrease in income = $76,000

Net income as per LIFO = $954,000