21. current cost Ralph manages a consumer products outlet. Inventory is important.

Customers will not return if the outlet is out of stock; and inventory carrying costs are far from trivial. Changing prices are also an issue.

At present the historical cost of the outlet’s inventory is 2,036,000

(based on LIFO), while the current cost of the inventory is 2,345,000.

A compensation consultant has suggested Ralph be evaluated on the basis of current cost performance, where inventory would be valued at current cost and holding gains would be recognized as income. Ralph is suspicious, since this will add to the income measure’s volatility.

Carefully discuss the use of current cost measures in the evaluation context. Do you see any connection with the way GAAP handles foreign currency translation or fair value more broadly?