Learning Team Delivable
Business and Management
Submitted By Vmonteiro
Learning Team Deliverable Team D
The advantages of last-in first-out (LIFO) method consist of four different components. The first advantage of LIFO is recent cost against current revenues. This is advantage because the inventory cost will matched the physical cost of the replacement inventory without inflation to drive up the cost. The LIFO reduced the inventory profits by matching the recent costs against revenues. This will help in eliminating cost of goods sold to be understated and profit to be overstated.
The second advantage of LIFO is tax benefits and improvement in cash flows. The advantage of inventory being purchase at the higher cost is matched to the revenues of the period. This will result in the profit being properly stated for tax purpose. This will cause a reduce in the tax bill and result in helping to improve the cash flow of the company.
The third advantage of LIFO is minimizing write down inventory to market cost. The advantage of the inventory being purchased would not be affected by future price increase. By using this LIFO method the inventory is usually purchased at the higher price and sold at the higher prices first. The result of using LIFO minimized the need to write down prices due to future price hikes.
The fourth advantage of LIFO is physical flow of inventory. The advantage is important in most situations because of the physical inventory received by the company. The company tracks of the inventory that is received last in on top and oldest on the bottom. When you are reviewing company records such as gasoline; the new gasoline is added to the old gasoline on top. You will not be able to transfer the old gasoline to the top because it changes the order of the gasoline being used.
The disadvantages of last-in, first-out (LIFO) method consist of four different components. The first disadvantage of LIFO is...