Heinz Company began operations on January 1, 2017, and uses the first in, first out (FIFO) method in costing its raw material inventory. Management is contemplating a change to the last in, first out (LIFO) method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed: Final Inventory 2017 2018 FIFO $640,000 $ 712,000 LIFO $560,000 $636,000 Net Income (computed under the FIFO method) $980,000 $1,030,000 Based on the above information, a change to the LIFO method in 2018 would result in net income for 2018 of ________. Group of answer choices $1,070,000 $1,030,000 $954,000 $950,000

Answer:

C. $954,000

Explanation:

Final inventory      FIFO            LIFO      Difference

2017                      640,000    560,000     80,000

2018                      712,000     636,000      76,000

Note: When method is changed to LIFO in 2018, it will effect ending inventory of 2018 only.

Net income as per FIFO                         $1,030,000

Decrease in income due to decrease  -$76,000    

in the ending inventory as per LIFO

Net income as per LIFO                         $954,000

So, a change to the LIFO method in 2018 would result in net income for 2018 of $954,000

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