Question:
Benson Company was franchised on January 1, 2011. At the end of its third year of operations, December 31, 2013, management requested a study to determine what effect different materials inventory costing methods would have had on its reported net income over the three-year period.The materials inventory account, using LIFO, FIFO, and moving average, would have had the following ending balances:
|
|
Materials Inventory Balances
|
|
December 31
|
LIFO
|
FIFO
|
Average
|
|
$2,010
|
$20,000
|
$22,000
|
$21,000
|
|
2,011
|
20,000
|
24,000
|
23,000
|
|
2,012
|
20,000
|
30,000
|
27,667
|
a. Assuming the same number of units in ending inventory at the end of each year, were material costs rising or falling from 2011 to 2013?
b. Which costing method would show the highest net income for 2011?
c. Which method would show the lowest net income for 2013?
d. Which method would show the highest net income for the three years combined?