Question

Pinkie Copy Center sells laser printers and supplies. Pinkie Copy Center started the year with 90 containers of ink (average cost of $9.20 each, FIFO cost of $8.80 each, LIFO cost of $7.90 each). During the year, Pinkie Copy Center purchased 720 containers of ink at $10.10 and sold 630 units for $22.00 each. Pinkie Copy Center paid operating expenses throughout the year, a total of $4,000. Pinkie Copy Center's income statement-excluding the effects of income tax under each of the average-cost, FIFO, and LIFO inventory costing methods- is given.

Pinkie Copy Center is a corporation subject to a 40% income tax. Compute the​ company's income tax expense under the​ average-cost, FIFO, and LIFO inventory costing methods. Which method would you select to (a) maximize income before tax and (b) minimize income tax expense?
Pinkie Print Supplies, Inc.
Income Statement
Year Ended December 31
Average Cost FIFO LIFO
Sales revenue $13,860 $13,860 $13,860
Cost of goods sold 6,300 6,246 6,363
Gross profit $7,560 $7,614 $7,497
Operating expenses 4,200 4,200 4,200
Net income before
tax $3,360 $3,414 $3,297
Income tax expense

Answer 1

A) FIFO costing method

B) LIFO cost method

Step-by-step explanation:

Pinkie copy center income tax expense ending December 31

Average cost FIFO LIFO

Sales revenue 13860 13860 13860

Cost of goods sold 6300 6246 6363

Gross profit 7560 7614 7497

Operating expense 4000 4000 4000

Net income before tax 3560 3614 3497

Income tax expense 1424 1446 1399

Net income 2136 2168 2098