🎯 Practical Case: Inventory Costing Decision
Your Mission
Compare FIFO and LIFO methods for "ElectroMart" and decide which method results in higher profit during rising prices!
Inventory Data
| Date | Activity | Units | Cost per Unit | Total |
|---|---|---|---|---|
| Jan 1 | Beginning Inventory | 100 | $10 | $1,000 |
| Jan 10 | Purchase | 200 | $12 | $2,400 |
| Jan 20 | Purchase | 150 | $15 | $2,250 |
| Goods Available for Sale | 450 | $5,650 | ||
| Jan 31 | Sold | 300 | ||
| Jan 31 | Ending Inventory | 150 | ? | |
Step 1: Calculate FIFO Cost of Goods Sold
Under FIFO, we sell the oldest units first.
Units Sold (300):
- 100 units @ $10 = $1,000
- 200 units @ $12 = $2,400
- Total COGS = ?
Step 2: Calculate LIFO Cost of Goods Sold
Under LIFO, we sell the newest units first.
Units Sold (300):
- 150 units @ $15 = $2,250
- 150 units @ $12 = $1,800
- Total COGS = ?
Step 3: Compare Financial Impact
Assume sales revenue = $8,000. Which method gives higher net income?
FIFO Method
Sales: $8,000
COGS: $0
Gross Profit: $0
LIFO Method
Sales: $8,000
COGS: $0
Gross Profit: $0
🎉 Analysis Complete!
During rising prices, FIFO results in higher net income because older (cheaper) costs are matched against current revenues!