Reference no: EM132540412

Question - Scenario: John Davis has recently been promoted to production manager. He is unsure whether the company should use a FIFO or LIFO method for inventory and he has asked for your opinion. Mr. Davis wants to maximize the net income shown in the income statement for the company. Mr. Davis told you that prices are rising.

Inventory information for the company is as follows:

1. Inventory January 1, 2019: 8,000 units at a cost of $11/each

2. Purchase as of June 30, 2019: 13,000 units at a cost of $12/each

3. Purchase as of December 5, 2019: 5,000 units at a cost of $13/each

4. Ending inventory as of December 31, 2019: 9,000 units

Explain to Mr. Davis the following:

1. The cost of ending inventory under FIFO (provide calculations)

2. The cost of ending inventory under LIFO (provide calculations)

3. Explain which method you suggest Mr. Davis uses in order to maximize the income shown in the company's income statement and why (provide your rationale).

4. Provide one disadvantage of using your recommended method vs. the alternate. For example, if you recommend FIFO explain the disadvantage of using this method over LIFO or vice versa.