A Firm Using FIFO Had a Beginning Inventory of $48,000

question 125

Multiple Choice

A firm using FIFO had a beginning inventory of $48,000, an ending inventory of $56,000, and a pretax income of $400,000.If it had used LIFO, its beginning inventory would have been $20,000, its ending inventory would have been $16,000, and its pretax income would have been:

• A)$374,000
• B)$388,000
• C)$396,000
• D)$404,000
• E)$412,000

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Definitions:

Prime Costs

The combined costs of direct materials and direct labor that are directly involved in the production of goods.

Direct Materials Costs

Costs that are directly traceable to the production of specific goods or services, such as raw materials used.

Direct Labor Costs

Expenses related to employees who directly contribute to the production of goods or services, such as wages for assembly line workers.

Period Costs

Costs that are expensed in the period they are incurred rather than being capitalized or included in the cost of goods sold, such as selling, general, and administrative expenses.