acc 205 week 3 dq
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[Writer’s Name]

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Week 3 - DQs 1. LIFO vs. FIFO The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method. The controller’s bonus is based on the next income. It is the controller’s belief that the switch in inventory methods would increase the net income of the company. What are the differences between the LIFO and FIFO methods?

Guided Response: Analyze several of your peers’ posts. Let at least two of your peers know if a company is better off it switches from a LIFO method to a FIFO method? Explain your reasoning.

The Differences between the LIFO and FIFO Methods To account for the value of inventory once it is sold, the two common inventory valuations used by companies are LIFO and FIFO. In periods of rising prices (inflation), in LIFO method, there are higher COGS and lower value of inventory and in FIFO method, there is lower COGS and higher value of inventory (Beechy & Et.al, 2011). In periods of falling prices (Deflation), in LIFO method, there are lower COGS and higher value of inventory and in FIFO methods, there is higher COGS and lower value of inventory. The way in which the COGS are calculated is the main difference between these methods of inventory. Consider the purchase of butter at your local grocery store to understand the FIFO inventory method. You are not buying the most recent butter box, but the first butter box placed on the rack. The first butter box is first-out sold and the first butter box placed on the rack is first-in sold. Consider the sale of a hammer at a hardware store, to understand the LIFO inventory method. The first hammer purchased and grabbed, i.e., the first-out is the last hammer to be placed on the pile, i.e., the last-in, when the bucket of hammers