Question

If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much tax savings resulted from using LIFO

Answer 1

$800

Step-by-step explanation:

The computation of the tax saving from using LIFO is shown below:

= Cost of goods sold under LIFO × tax rate - Cost of goods sold under FIFO × tax rate

= $10,000 × 40% - $8,000 × 40%

= $4,000 - $3,200

= $800

By applying the above formula, the tax saving resulted from using the LIFO is $800 and the same is to be considered