Question

Mannisto Inc. uses the FIFO inventory cost flow assumption. In a year of rising costs and prices, the firm reported net income of $219,017 and average assets of $1,413,720. If Mannisto had used the LIFO cost flow assumption in the same year, its cost of goods sold would have been $36,220 more than under FIFO, and its average assets would have been $31,640 less than under FIFO.
Required:
Calculate the firm's ROI under each cost flow assumption (FIFO and LIFO).

Answer 1

Answer:

a) Under the FIFO method:-

ROI = 15.49%.

Under LIFO method:-

ROI = 13.2%

Explanation:

ROI = Net Income * 100 / Avverage assets.

a) Under the FIFO method

$ROI= \frac{219017*100}{1413720} \\ROI = 15.49$

ROI = 15.49%.

Under LIFO method

$ROI= \frac{182797*100}{1382080} \\ROI=13.2%$

ROI = 13.2%

Net income Under LIFO= Net income under FIFO-Increased cost of goods sold

= $219017-$36,220= $182797.

Average assets under LIFO= Average assets under FIFO-Average assets that are less under LIFO

= $1413720 - $31,640= $1382080.