interoffice memorandum to: | Executive Vice President | from: | Aftden white & teammates | subject: | Last in/First out & first in/first out | date: | February 5, 2013 | | | | | In response, to the request of inventory methods of Last In/ First Out and First In/ First Out overview. The team researched and discussed the contrast between the two inventory methods..
The choice of Last In/ First Out and First In/First Out will influence the profit and loss statements. The company should continue with using Last In/ First Out if the costs remain the same, but we should move to First In/First Out if the costs increase, as expected. The question of whether the company’s Cost of Goods Sold and inventories cost will increase or decrease with the use of the two inventory methods. To our findings, the First In/First Out will decrease the value of the Cost of Goods Sold and have an increase value of inventory. The Last In/ First Out will decrease the value of Cost of Goods Sold and decrease the value of inventory.
To improve the company’s cash flow and profit margin, the Last In/ First Out method is best. With Last In/ First Out, we can continue to reduce federal and state corporate income taxes. The reduction of corporate income taxes has leaded the company to better cash flow and profit margin.
We recommend continuing to use the Last In/First Out because of the improvements it will have on cash flows and profit margin. Please find the overview to be helpful in making the decision of which inventory method to apply to the company.