Assume that all three retailers sell a popular shirt that retails for $32. To compare the impact of inventory costing method, we will also assume that all three retailers have the following inventory and sales data for the same period. To keep the calculations simple, a unit represents one million shirts. Beginning inventory: 3 units @ $10.00 Purchases: 2 units @ $15.00 Ending inventory: 1 unit

5. If prices are decreasing, would FIFO or LIFO produce the highest income? Explain.

6. Would FIFO or LIFO produce the highest inventory cost on the balance sheet if prices are rising? Explain.