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# Case - Which method shall we use? LIFO FIFO

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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.

over 300 words

#### 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.

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