Problem:

Mills, Inc., sold 120,000 cases of glue at $20 per case during 2014. Its beginning inventory consisted of 20,000 cases at a cost of $12 per case. During 2014 it purchased 60,000 cases at $14 per case and, later, 50,000 cases at $15 per case. Operating expenses were $550,000, and the applicable income tax rate was 30 percent.

Required:

Question 1: Using the periodic inventory system, compute net income using the FIFO method and the LIFO method for costing inventory. Which alternative produces the larger cash flow?

Question 2: The company is considering a purchase of 10,000 cases at $15 per case just before the year end. What effect on net income and on cash flow will this proposed purchase have under each method?

Note: Please show how you came up with the solution.