Question

Able Manufacturing Corporation makes water pumps that are used in residential and commercial building. The company...

Able Manufacturing Corporation makes water pumps that are used in residential and commercial building. The company uses FIFO inventory method for manufacturing process of it’s basic commercial water pump and the LIFO inventory method for the costs associated with conversion of core pump into pumps suitable for residential installation. Is the company using a proper method of accounting for it’s inventory in accounting for it’s inventory costs? Why or Why not? Assuming the company is using the incorrect method, what should the company do?

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Answer #1

LIFO & FIFO are two inventory valuation methods.

LIFO last in first out

FIFO first in first out

yes company using appropriate method of inventory valuation.Suitability of method depends on storage,expiry of goods.It is at the discretion of company to use which method.

If the company using incorrect method,then company should change the method of inventory valuation with proper disclosure like reason to change method, effects of change on financial statement.

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