Mandela Company's first year in operation was 2013. The following inventory information comes from Mandela's accounting records for the year. During the year, Mandela sold 350 units for $240 each. Operating expenses for the year were $15,000, and the tax rate was 30%.
Required:
a) Calculate the cost of goods sold by LIFO and by FIFO.
b) What amount of income tax would Mandela have to pay if it uses LIFO? If it uses FIFO?
c) Assuming that the results for 2013 are representative of what Mandela can generally expect, would you recommend that the company use LIFO or FIFO? Explain.

Question

Mandela Company's first year in operation was 2013. The following inventory information comes from Mandela's accounting records for the year.  During the year, Mandela sold 350 units for $240 each. Operating expenses for the year were $15,000, and the tax rate was 30%.
Required:
a) Calculate the cost of goods sold by LIFO and by FIFO.
b) What amount of income tax would Mandela have to pay if it uses LIFO? If it uses FIFO?
c) Assuming that the results for 2013 are representative of what Mandela can generally expect, would you recommend that the company use LIFO or FIFO? Explain.

Quizplus · Accepted Answer

The Answer of Mandela Company's first year in operation was 2013. The following inventory information comes from Mandela's accounting records for the year.  During the year, Mandela sold 350 units for $240 each. Operating expenses for the year were $15,000, and the tax rate was 30%.
Required:
a) Calculate the cost of goods sold by LIFO and by FIFO.
b) What amount of income tax would Mandela have to pay if it uses LIFO? If it uses FIFO?
c) Assuming that the results for 2013 are representative of what Mandela can generally expect, would you recommend that the company use LIFO or FIFO? Explain.

Mandela Company's First Year in Operation Was 2013