LIFO and inventory flow The following is an excerpt from a conversation between Paula Marlo, the warehouse manager for Musick Foods Wholesale Co., and its accountant, Mike Hayes. Musick Foods operates a large regional warehouse that supplies produce and other grocery products to grocery stores in smaller communities.

Paula: Mike, can you explain what’s going on here with these monthly statements?

Mike: Sure, Paula. How can I help you?

Paula: I don’t understand this last-in, first-out inventory procedure. It just doesn’t make sense.

Mike: Well, what it means is that we assume that the last goods we receive are the first ones sold. So the inventory consists of the items we purchased first.

Paula: Yes, but that’s my problem. It doesn’t work that way! We always distribute the oldest produce first. Some of that produce is perishable! We can’t keep any of it very long or it’ll spoil.