MEMO TO: Partners of Fan Company A
FROM: Your Name
DATE: Submission Date
SUBJECT: Recommended Inventory Valuation Method
Introduction
I have calculated the ending inventory for Fan Company A using the four following inventory valuation methods:
 Periodic FIFO (First In, First Out)
 Periodic Average Cost
 Perpetual FIFO
 Perpetual LIFO (Last In , First Out)

to determine which inventory method to recommend to the management of the Company. A summary of my calculations follows.
Provide an explanation of your calculations for each of the inventory valuation methods.
Finally, your recommendation.
Fully explain how your inventory valuation method impacts the Company’s net income and why it is better than the other methods. INCOME EFFECT LIFO | WA | FIFO | Sales | 100,000 | 100,000 | 100,000 | CGAS (Beg Inv. + Purchases) | 74,000 | 72,000 | 70,000 | Ending Inventory | (48,000) earlier cost | (50,000) | (52,000) later cost | CGS | 26,000 later cost | 22,000 | 18,000 earlier cost | Income Effect | 74,000 | 78,000 | 82,000 |
Under the FIFO method, the first goods purchased are considered to be the first goods used or sold. Ending inventory is thus made up of the latest (most recent) purchases. Because of this, the FIFO method closely approximates the actual physical flow of merchandise and the cost allocated to ending inventory approximates current cost. Whenever the FIFO method is used, the ending inventory is the same whether a perpetual or periodic system is used. This is true even during periods of rising or falling prices because the inventory flow is always in chronological order. The FIFO method does not permit much manipulation of income, because the company is not free to pick a certain cost item to be charged to expense. In a period of inflation (rising prices), the FIFO method produces lower cost