Inventory

Question 1

FIFO to LIFO when prices are increasing

Answer 1

In a period of rising prices, changing from FIFO to LIFO will cause ending inventory to decrease because the earlier, lower-cost items will be included.

As a result of the lower-ending inventory, cost of goods sold will be higher. (Less-ending inventory will be subtracted from cost of goods available.) The higher cost of goods sold will produce a decrease in net income.

Question 2

FIFO and weighted average inventory

versus LIFO and Retail Inventory Method (RIM)

Answer 2

FIFO simply uses lower cost or NRV (LC-NRV). NRV is selling pricing less cost for completion, disposal and transportation. While LIFO uses NRV for the ceiling and NRV less Profit Margin for the floor.