[Nikki4]

What is one of the reasons for selecting the LIFO cost flow assumption instead of the FIFO cost flow assumption in an inflationary economic environment?

Would it be that income taxes will be lower? Net income will be higher? Higher selling price can be established?

[CaptainForest]

On Jan 1 I buy 100 units at $3/unit for a total of $300.

On Jan 23 I buy 100 units at $12/unit for a total of $1,200

My total inventory value after January 23 purchase is $1,500


On Jan 25, I sell 100 units.

Under FIFO, I would sell the inventory at $300, having expenses of $300

Under LIFO, I would sell the $1,200, having expenses of $1,200

Therefore, LIFO increase expenses, and therefore lowers net income and lowers taxes payable.