Forums
Back
Material cost
Costing
How FIFO method will lead to decreasing trend of prices???
Answers (2)
FIFO stands for First In, First Out, which means the goods that are unsold are the ones that were most recently added to the inventory. If costs are increasing, the items acquired first were cheaper. This decreases the cost of goods sold (COGS) under FIFO and increases profit. Value of unsold inventory is also higher.
If company adopt FIFO method while in Decreasing trends.... FIFO Advantages in deflation trend 1. You may earn less profit because your cost of production high i.e. by issue of old stock which is purchased at higher rate means Less profit does mean less tax 2. You may purchase fresh stock at lower value in market If you are gone through LIFO method,in this case you may earn more profit not in the effect of your business activities only this is by Market based.
Your Reply