FA Module 8: Inventories – homework assignment

(The attached PDF file has better formatting.)

Homework assignment:

A firm is choosing among FIFO, LIFO, and weighted average inventory management systems. The firm has two objectives:

●    maximize reported profits for the period
●    minimize tax payments for the period

A.    If unit costs are increasing, how does the choice of inventory management system affect each objective?
B.    If unit costs are decreasing, how does the choice of inventory management system affect each objective?
C.    How does the trend of business volume (increasing vs flat vs decreasing) affect the answer?

Explain the reasoning for your solutions.