Question

How would you respond to back to the person below

After reviewing the discussion question I think the recommendation to reduce the list to $1,000 could help the company. If a companies inventory is increased it doesn't necessarily mean that the company will sell more of that inventory over a period of time. The company may also save on purchases due to the increased amount of inventory that raised up to $50 per unit. In some instances items or inventory that arrived last and sold first could potentially pose a high risk to the company.

However, items or inventory that arrived first and sold first may show fluid processes and control with proper rotation of items.

I think the LIFO to FIFO method effects the process in a negative and positive way. A good example could be a company that uses an automatic system that tracks unit sales as they go through such as a cash register. This type of system creates orders based on transactions. The process works seamlessly when the inventory count is efficiently run and accurate. The process also helps the company properly rotate each unit.

Answer 1

The above stated is absolutely true. FIFO ensures you have a stricter control on your inventory, with no risk of inventory getting obsolete or lying idle for couple of years before anyone realizes it.

LIFO on the other hand has a certain risk emmbedded in it that the since the latest goods are sent outward first, there may come a time when the goods that had come the earliest will be lying around the warehouse for a long period of time before they are actually bought into use.

I hope the above solution is what you were looking for. For any further queries or doubts in the solution, please feel free to drop a comment. Please do leave a positive feedback, Thank you :)