Evaluation of Inventory Costing Methods Three large mass merchandisers use the following methods to value ending inventory:

Company X—weighted average cost Company Y—first-in, first-out (FIFO)

Company Z—last-in, first-out (LIFO)

The cost of inventory has steadily increased over the past ten years of the product life. Recently, however, prices have started to decline slightly due to foreign competition.

Required 1. Will the effect on net income of the decline in cost of goods sold be the same for all three companies?

Explain your answer.

2. Company Z would like to change its inventory costing method from LIFO to FIFO. Write an acceptable note for its annual report to justify the change.