Evaluating the Choice among Three Alternative Inventory Methods Based

Evaluating the Choice among Three Alternative Inventory Methods Based on Cash Flow Effects – Following is partial information for the income statement of Lumber Company under three different inventory costing methods, assuming the use of a periodic inventory system:FIFOLIFOAverage CostCost of goods soldBeginning inventory (400 units)$11,200$11,200$11,200Purchases (475 units)17,10017,10017,100Goods available for saleEnding inventory (545 units)Cost of goods sold$$$Sales, 330 units; unit sales price, $50Expenses, $1,700Required:1. Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.2. Prepare an income statement through pretax income for each method.3. Rank the three methods in order of income taxes paid (favorable cash flow) and explain the basis for your ranking.