Comparison of Inventory Valuation Methods
The Muhlstein Corporation began business on January 1, 2008. The following table shows information about inventories, as of December 31, for three consecutive years under different valuation methods. Assume that purchases are $50,000 each year. Using this information and assuming that the same method is used each year, you are to answer each of the questions that follow.
|
|
|
|
|
Lower of |
|
|
LIFO |
FIFO |
Market |
Cost or Market* |
|
2008 |
$10,200 |
$10,000 |
$ 9,600 |
$ 8,900 |
|
2009 |
9,100 |
9,000 |
8,800 |
8,500 |
|
2010 |
10,300 |
11,000 |
12,000 |
10,900 |
1. Which inventory basis would result in the highest net income for 2008?
2. Which inventory basis would result in the highest net income for 2009?
3. Which inventory basis would result in the lowest net income for the three years combined?
4. For the year 2009, how much higher or lower would net income be on the FIFO cost basis than on the lower of cost or market basis?