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6. In a head-to-head financial comparison of LIFO to FIFO, and assuming inventory quantities for a hypothetical U.S. manufacturer of a technology-based but nonspecialized product
6. In a head-to-head financial comparison of LIFO to FIFO, and assuming inventory quantities for a hypothetical U.S. manufacturer of a technology-based but nonspecialized product had not declined during the year, are each of the following generally true or not and why?
1. Cost of goods sold for the income statement calculated under the LIFO method would be higher than under FIFO if, during the year, the company had incurred ever-higher costs of production.
- FIFO presents ending inventory on the balance sheet as a function of the latest cost incurred for producing inventory items still on hand.
- FIFO results in a higher ending inventory monetary figure on the balance sheet than LIFO if, after several years of production costs holding steady during the current year, costs of production have declined.
- If, over the foreseeable future, the company's cost of supplies, raw materials, and manufacturing labor are projected to increase, the company could reduce its tax bill, all other things equal, by adopting LIFO.
- The company's income statement will best reflect the matching of current costs to current revenues by the company adopting FIFO.
- If, over the years, the cycle time for production is short (e.g., days, not months) and sales are continuous and inventory levels are lean, there would not be much difference between a FIFO-based and a LIFO-based ending inventory balance sheet figure and an income statement COGS figure for the company.
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