Question Details

Compute the lower-of-cost-or-net realizable 


1
Eckert Company reported the following summarized annual data at the end of 2011:
	Sales revenue	$1,000,000
	Cost of goods sold*	     600,000
	Gross margin	400,000
	Operating expenses	    250,000
	Income before income taxes	$   150,000
	*Based on an ending FIFO inventory of $250,000.
The income tax rate is 30%. The controller of the company is considering a switch from FIFO to average-cost. He has determined that on an average-cost basis, the ending inventory would have been $220,000.
Instructions
(a)	Restate the summary information on an average-cost basis.
(b)	What effect, if any, would the proposed change have on EcKert's income tax expense, net income, and cash flows?
(c)	If you were an owner of this business, what would your reaction be to this proposed change?


2
Compute the lower-of-cost-or-net realizable value valuation for Aber Company's total inventory based on the following: 	Inventory Categories	Cost Data	Net Realizable Value Data
	A	$18,000	$17,200 	B	  14,000	  14,600 	C	  21,000	  20,500 



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