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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:

Once a company has switched to the just-in-time procedure and has little inventory, should the inventory costing method (LIFO or FIFO) affect cost of goods sold?

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.

Just in time inventory, otherwise called JIT inventory, is the decreased measure of inventory claimed by a business after it installs a just-in-time manufacturing framework. This kind of framework is known as a "pull" framework. The intent of a JIT framework is to guarantee that the parts and sub-gatherings used to make finished merchandise are conveyed to the generation territory precisely on time. Doing so eliminates a lot of investment in inventory, along these lines reducing the working capital needs of a business.

To discuss:

Once a company has switched to the just-in-time procedure and has little inventory, should the inventory costing method (LIFO or FIFO) affect cost of goods sold?

Explanation

The main purpose behind using LIFO is when organizations expect 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, bought prior.

The distinction among FIFO and LIFO will exist just if the unit expenses of an organization’s items are increasing or decreasing...

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