Philipsburg Corporation sells mugs to fine retailers across the world.Data from its periodic inventory system is presented in the table below.Inventory is sold for $170 per unit.Operating expenses excluding cost of goods sold totaled $40,000. Which cost flow method would result in the LOWEST taxable income for the period?

Question

Philipsburg Corporation sells mugs to fine retailers across the world.Data from its periodic inventory system is presented in the table below.Inventory is sold for $170 per unit.Operating expenses excluding cost of goods sold totaled $40,000.  Which cost flow method would result in the LOWEST taxable income for the period?

Quizplus · Accepted Answer

The LIFO (last-in, first-out) method would result in the lowest taxable income for the period because it assumes that the most recently purchased inventory is sold first. This means that the cost of goods sold will be higher compared to FIFO (first-in, first-out) or weighted average methods, resulting in a lower taxable income. LIFO is allowed for tax purposes under US GAAP, and thus can be used to minimize taxable income.

Philipsburg Corporation Sells Mugs to Fine Retailers Across the World