Question

Joachim Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased 1,200 units, pretax income would have been:

Answer 1

Answer:

Pretax less by $ 2,000

Explanation:

Under LIFO, Goods that were purchased last are sold first.

Opening stock: 300 @ $ 10

Additional purchases: [email protected] 20

Units sold:  1200.

Scenario one: with  1000 new purchases

=(1000x20)+ (200X10)

=$20000+2000

=$22,000.00

Scenario two:  With  1200 as new purchases

=12000x20=$ 24,000

The difference= $ 24,000-$22,000= $2,000.00

Pre tax profit less by $2,000.00