Company Analysis using LIFO or FIFO

  1. Inventory and cost of goods sold figures prepared under the LIFO cost flow assumption versus the FIFO cost flow assumption can differ dramatically.

Required:

a: Would an analyst consider ending inventory asset value more useful if computed using LIFO or FIFO? Explain.

  1. Would an analyst consider cost of goods sold more useful if computed using LIFO or FIFO? Explain.
  2. Assume a company uses the LIFO cost flow assumption. Identify any FIFO-computed values that are useful for analysis purposes, and explain how they are determined using financial statement information.
  3. During a period of rising inventory costs and stable output prices, describe how new income and total assets would differ depending upon whether LIFO or FIFO is applied. Explain how your answer would change if the company is experiencing declining inventory costs and stable output prices.