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If you were attempting to maximize your net income, which inventory cost flow assumption would you...

If you were attempting to maximize your net income, which inventory cost flow assumption would you choose? Why? What conditions must exist for this method to produce the highest net income? When perpetual inventory records are kept, the results under the FIFO and LIFO methods are the same as they would be in a periodic inventory system.” Do you agree? Explain.

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Answer #1

>> Generally Net income be more if Closing Inventory is higher.

In Inflation Market , the Inventory price of lastest goods show higher price, So then FIFO method shows higher closing Inventory value. In this Case FIFO shows higher Net Income.

In deflation market, LIFO method shows Closing Inventory shows higher Value. In this case LIFO shows higher income.

>> Only FIFO Method shows same Inventory value under perpetual Inventory method and periodic method.

But LIFO Method, Inventory Value varies in two methods of Periodic and perpetual Inventory Method.

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