ACC205 W3D1.docx - The controller of Sagehen Enterprises...

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The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method. The controller’s bonus is based on the next income. It is the controller’s belief that the switch in inventory methods would increase the net income of the company. What are the differences between the LIFO and FIFO methods? The differences between the LIFO and FIFO methods are with LIFO you have inventory that is Last-In- First-Out is “when a sale occurs, the assumption is that the units sold were from the last, or most recent, available units: last-in, first-out” (Wainwright, 2012, Sec. 5.3, para. 9). Also, “a general rule of thumb states LIFO will produce the lowest profits during a period of rising prices. Obviously, income is being charged with higher recent costs. Thus, many companies prefer to use LIFO because it reduces income on which taxes may be assessed. However, you will probably find it interesting to note that many countries outside of the United States do not permit the LIFO method” (Wainwright, 2012, Sec. 5.4, para.

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