Question
Claudia tried so hard to be positive about inventory systems in Chapter 6. She managed to keep most of her sarcastic comments to herself and
Claudia tried so hard to be positive about inventory systems in Chapter 6. She managed to keep most of her sarcastic comments to herself and just fight through the material. "Perpetual-this, periodic-that; yeah, yeah, whatever..." She told herself if she could just make it through that chapter, she'd never have to deal with inventory again in an accounting class. She took her test last week and even managed to enjoy some of the festivities leading up to Halloween. Chapter 6 is over! Victory! Good riddance! Now she has opened up to Chapter 7 and she can't believe her eyes. "Another chapter about inventory?? What the hell?!" After throwing her book across the room and cursing to her heart's content, Claudia started reading about FIFO, LIFO, and Weighted Average inventory methods. Immediately, she got disgusted. "Why do we have all these stupid choices of inventory methods instead of just using one all the time? This just makes it harder."
(1) Briefly describe each of the inventory methods named above and address Claudia's question. How is each method different? What are the advantages and disadvantages of each method?
(2) Which method might you prefer if you were a manager and your bonus was tied to a financial performance measure such as net income? Could this ever lead to a conflict of interests?
(3) Wouldnt a company always select the inventory method that resulted in the highest net income so the business looks good? Please discuss.
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