88%(8)7 out of 8 people found this document helpful
This preview shows page 1 out of 1 page.
Mr. John Meeks, I have included the many factors that should be considered when deciding between LIFO and FIFO. LIFO (Last in first out) is the method that assumes the units sold are the most recent unitspurchased. Whereas, FIFO (First in first out) is the method that assumes the units sold are the first units acquired. The beginning inventory is sold first following chronological order of their acquisition. Whether it will be FIFO or LIFO that produces the highest or lowest value of cost ofgoods sold and ending inventory depends on the pattern of the actual unit cost changes during theperiod (Spiceland, 2011). If in a period there are rising costs, FIFO results in a lower cost of goods sold then LIFO because the lower costs of the earliest items are sold. LIFO would mean the goods sold were the higher cost goods. With this in mind it also means the ending inventory for FIFO would be higher since the lower cost goods were sold first and LIFO has a lower ending inventory since the higher cost goods were sold first.