Analyse various possible inventory costing policies Yang Ltd has been in business for three years and pays income tax at 30 per cent. The company manages its inventories well, so there are no significant inventories for which cost is less than net realisable value. Here are the company’s inventory asset and COGS expense for the past three years, computed under each of three methods:

2022 2021 2020

$ $ $

FIFO Ending inventory 112 000 148 000 115 000 COGS expense 636 000 867 000 585 000 AVGE Ending inventory 108 000 126 000 106 000 COGS expense 618 000 880 000 594 000 LIFO Ending inventory 104 000 118 000 92 000 COGS expense 614 000 874 000 608 000 Purchases in each year 600 000 900 000 700 000 1 Determine the inventory cost policy that would produce the highest and lowest profit in each year and calculate the effect on net profit of choosing the former over the latter.
2 Given the variation of results you observed in question 1, how should a company choose its inventory cost policy?