Lewis Corporation Essays

723 Words Nov 22nd, 2010 3 Pages
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Lewis Corporation*

Lewis Corporation had traditionally used the FIFO method of inventory valuation. You are given the information shown in exhibit 1 on transactions during the year affecting Lewisâ€™s inventory account. (The purchases are in sequence during the year. The company uses a periodic inventory method).

Exhibit 1 Inventory Transactions 2000-2002--------------------------------------------------- 2000
Beginning Balance 1,840 Cartons @ \$20.00
Purchases 600 cartons @ 20.25 800 cartons @ 21.00
Calculate the cost of goods sold and year-end inventory amounts for 2000, 2001, and 2002 using the (a) FIFO, (b) LIFO, and (c) average cost methods.

2). Lewis Corporation is considering switching from FIFO to LIFO to reduce its income tax expense. Assuming a corporate income tax rate of 40 percent, calculate the tax savings this would have made for 2000 to 2002. Would you recommend that Lewis make the change?

3). Dollar sales for 2003 are expected to drop by approximately 8 percent, as a recession in Lewisâ€™s market is forecasted to continue at least through the first three quarters of the year. Total sales are forecasted to be 2,700 cartons. Lewis will be unable to raise its selling price from the 2002 level of \$35.75. However, costs are expected to increase to \$24.00 per carton for the whole year. Due to these cost/price pressures, the corporation wishes to lower its investment in inventory by holding only the

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