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Problem 3 (12 pts.): Inventory and cost of goods sold calculations made under the FIFO and LIFO methods of inventory valuatio

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Part a
FIFO LIFO
Sale $   3,000,000 $   3,000,000
Less: Cost of Goods Sold $     (837,000) $     (900,000)
Gross Profit $   2,163,000 $   2,100,000
Difference $         63,000
Part b FIFO
Part c
Since Profit is lower in LIFO, company will have tax saving in cash outflow.
Additional cash available in LIFO $63,000*30% $         18,900
Part d
Rising Prices.
Since in FIFO, inventory purchase in last will be in inventory which is higher cost than LIFO
This means, inventory purchased first were of lower cost and purchased in end were of higher cost.
Part e
LIFO
Sance last purchased inventory is sold first, COGS will be actual physical flow of goods through most companies.
Part f
FIFO
Since inventory purchased in last will be in stock, it will give most meaningful inventory for balance sheet
as rates will be latest
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