Question

Do you agree that the use of LIFO provides a tax benefits in an industry where unit costs tend to decrease as production increases, why and why not?

Answer 1

No, I am not agree that the use of LIFO provides a tax benefits in an industry where unit costs tend to decrease as production increases because of the following reasons, namely

1) Using LIFO, the cost of the good sold is reduced if the unit cost tend to decrease as production increases which ultimately leads to increase in the profit.

2) The Value of Closing Stock at the end of the Period is high which also increase the profit of the company and ultimately tax will be higher.