C finished goods these are finished goods which are

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c.Finished goods: These are finished goods which are ready to be sold. The cost includes cost of raw material, processing costs and other production overhead. C.Cost flow assumptions are used and are necessary for determining the inventory cost. Theassumptions are necessary due to increase in cost arising out of inflation and changes in costs experienced. This would not have been required if the cost remained stagnant or stable. Company DC is using the Last in First Out (LIFO) method for determining the inventory cost. Under this method, consumption of inventory is valued at the latest purchase price of the inventory. D.Inventory is valued using various methods. Under FIFO method it is assumed that the earliest purchased stock inventory will be issued first and, hence, at the earliest price. Theclosing value of inventory is therefore valued at the latest purchase price. Under LIFO method it is assumed that latest purchased inventory is issued first and, hence, valued accordingly. The company DC is using the LIFO method for determining the inventory cost, whereas company CG is using the FIFO method. As inventory price will increase for inventory of both the companies, the following would be the impact:a.The inventory of company DC will be understated as it would be valued at the earliest rate of procurement. The inventory of the other company, however, wouldreflect the current market price as it would be valued at more recent prices. b.In the income statement, the costs of goods cold would be impacted by the inventory valuation method. The cost of goods sold for company DC would be higher compared to that of company CG. c.In a case where prices decrease over time, the impact would be the reverse as in the case of the prices increasing.

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