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Inventory profit and LIFO

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What is inventory profit? How does the use of LIFO inventory costing help to reduce it?

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Solution Summary

This solution explains the concept of inventory profit by showing an numerical example and how it can be reduced using the LIFO method.

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Inventory profit is the portion of the gross profit that results from keeping the inventory during a period when prices are rising.

The profits of a firm can change depending upon how the inventory is valued. In an ideal world, we should value the used items in the cost of goods sold at its replacement cost. Since, a company is a going concern, inventory must be replacement and replacement cost is more relevant. The difference in ...

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