Explore BrainMass

Explore BrainMass

    Case - Which method shall we use? LIFO FIFO

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The White Wove Corporation began operations in 2011. A summary of the firs quarter appears below:

    Purchases:
    January 2...............250 units...............$23,250

    February 11............100 units...............$9,500

    February 20.............400 units.........$38,400

    March 21................200 units..............$19,600

    March 27..................225 units..................$22,275

    Other data:

    January.....................200 sales in units sales price per unit $140 operating expenses $9,575

    February.............225 sales in units sales price per unit $142 operating expenses $7,820

    March.................350 sales in units sales price per unit $145 operating expenses $7,905

    The White Wove Corporation used the FIFO perpetual inventory method and correctly computed an inventory value of $38,300 at the end of the first quarter.
    Management is considering changing to a FIFO costing method.

    It has also considered using a periodic system instead of the perpetual system presently being used.

    You have been hired to assist management in making the decision.

    What would you advise?

    over 300 words

    © BrainMass Inc. brainmass.com June 4, 2020, 12:36 am ad1c9bdddf
    https://brainmass.com/business/inventory/case-method-shall-use-lifo-fifo-348458

    Solution Preview

    FIFO and LIFO are two different ways to account for the cost of inventory.
    FIFO is first in first out which means the inventory you purchased in
    the past will be the first inventory you sell. While the inventory you purchase
    now will be the inventory you sell later. So you are always pulling from the
    oldest inventory. LIFO is just the opposite the inventory you purchased in
    the past is the last inventory to be sold.

    Let's say you sell a perishable item like eggs. If you use FIFO then the inventory
    you purchased in the past will be the first inventory you sell.
    You put the eggs with the closest expiration date in the front (the ones you purchased
    first) and the ones with a later expiration date in the back. If you put the ones that you
    purchased last in the front utilizing LIFO you would end up with an abundance of
    expired ...

    Solution Summary

    Which method should be used is determined. LIFO and FIFO is examined.

    $2.19

    ADVERTISEMENT