Question

Heinz Company began operations on January 1, 2017, and uses the first in, first out (FIFO) method in costing its raw material inventory. Management is contemplating a change to the last in, first out (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 2018 would result in net income for 2018 of ________. Group of answer choices $1,070,000 $1,030,000 $954,000 $950,000

Answer 1

C. $954,000

Step-by-step explanation:

Final inventory FIFO LIFO Difference

2017 640,000 560,000 80,000

2018 712,000 636,000 76,000

Note: When method is changed to LIFO in 2018, it will effect ending inventory of 2018 only.

Net income as per FIFO $1,030,000

Decrease in income due to decrease -$76,000

in the ending inventory as per LIFO

Net income as per LIFO $954,000

So, a change to the LIFO method in 2018 would result in net income for 2018 of $954,000