(Supplement A) Analyzing LIFO and FIFO When Inventory Quantities Decline Based on an Actual Note
In a recent annual report, General Electric reported the following in its inventory note:
December 31 (dollars in millions) | Current Year | Prior Year |
Raw materials and work in progress | $5,603 | $5,515 |
Finished goods | 2,863 | 2,546 |
Unbilled shipments | 246 | 280 |
| 8,712 | 8,341 |
Less revaluation to LIFO | (2,226) | (2,076) |
LIFO value of inventories | $6,486 | $6,265 |
It also reported a $23 million change in cost of goods sold due to "lower inventory levels."
Required:
1. Compute the increase or decrease in the pretax operating profit (loss) that would have been reported for the current year had GE employed FIFO accounting for all inventory for both years.
2. Compute the increase or decrease in pretax operating profit that would have been reported had GE employed LIFO but not reduced inventory quantities during the current year.
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