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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Inventory Costing When Inventory Quantities Are Small

A number of companies have adopted a just-in-time procedure for acquiring inventory. These companies have arrangements with their suppliers that require the supplier to deliver inventory just as the company needs the goods. As a result, just-in-time companies keep very little inventory on hand.

Required:

Should the inventory costing method (FIFO or LIFO) have a material effect on cost of goods sold when a company adopts the just-in-time procedure and reduces inventory significantly?

To determine

Introduction:

The "just-in-time method" is an inventory procedure where materials are just arranged and gotten as they are required in the creation procedure. The objective of this method is to lessen costs by saving cash on overhead inventory costs.

To discuss:

Should the inventory costing method (FIFO or LIFO) have a material effect on cost of goods sold when a company adopts the just-in-time procedure and reduces inventory significantly?

Explanation

The main explanation behind using LIFO is when organizations accept that inventory cost will increase after some time, which implies costs will inflate. While implementing LIFO framework, cost of as of late obtained inventories goes higher, when contrasted with inventories, acquired prior.

The distinction among FIFO and LIFO results from the request in which changing unit costs are expelled from inventory and become the expense of merchandise sold...

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