A company sells a green widget. The firm uses the FIFO cost layering system, and the oldest cost layer for the green widget states that the widget costs $10. The widget sells for $14, so the profit appears to be $4. However, the replacement cost of the widget is $13, so if the widget had been sold at replacement cost, the profit would instead have been $1. Thus, the $4 profit using FIFO is comprised of a $3 phantom profit and a $1 actual profit