Question

Mannisto Inc. uses the FIFO inventory cost flow assumption. In a year of rising costs and prices, the firm reported net income of $217,775 and average assets of $1,463,010. If Mannisto had used the LIFO cost flow assumption in the same year, its cost of goods sold would have been $39,290 more than under FIFO, and its average assets would have been $42,760 less than under FIFO. Required: a. Calculate the firm's ROI under each cost flow assumption (FIFO and LIFO). (Enter your answers as percentages rounded to 1 decimal place (i.e., 12.2%).) FIFO LIFO ROI b. Suppose that two years later costs and prices were falling. Under FIFO, net income and average assets were $253,695 and $1,787,450, respectively, I LIFO had been used through the years, inventory values would have been $43,520 less than under FIFO, and current year cost of goods sold would have been $24,710 less than under FIFO. Calculate the firm's ROI under each cost flow assumption (FIFO and LIFO) (Enter your answers as percentages rounded to 1 decimal place (i.e., 12.2%).) FIFO LIFO ROI

Answer 1

Answer

Solution a:

Firm's ROI = Net income / Average assets

ROI under FIFO assumption = $217,775 / $1,463,010= 14.89%

Net income under LIFO Assumption = $217,775 - $39,290 = $178,485

Average assets under LIFO assumption = $1,463,010 - $42,760 = $1,420,250

ROI under LIFO Assumption = $178,485 / $1,420,250 = 12.57%

Solution b:

ROI under FIFO assumption = $253,695 / $1,787,450 = 14.19%

Net income under LIFO Assumption = $253,695 + $24710 = $278405

Average assets under LIFO assumption = $1,787,450 - $43,520 = $1,744,200

ROI under LIFO Assumption = $278,405 / $1,744,200 = 15.96%

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