Reference no: EM13911883
Mannisto, Inc., uses the FIFO inventory cost flow assumption. In a year of rising costs and prices, the firm reported net income of $1,920,000 and average assets of $12,000,000. If Mannisto had used the LIFO cost flow assumption in the same year, its cost of goods sold would have been $320,000 more than under FIFO, and its average assets would have been $320,000 less than under FIFO.
Required:
a. Calculate the firm's ROI under each cost flow assumption.
b. Suppose that two years later costs and prices were falling. Under FIFO, net income and average assets were $2,304,000 and $14,400,000, respectively.
If LIFO had been used through the years, inventory values would have been $400,000 less than under FIFO, and current year cost of goods sold would have been $160,000 less than under FIFO. Calculate the firm's ROI under each cost flow assumption.
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