Cost for inventory purposes should be determined by the inventory cost flow method most clearly reflecting periodic income. Students should respond to the three questions presented below:

1. Describe the fundamental cost flow assumptions for the average cost, FIFO and LIFO inventory cost flow methods.

2. Discuss the reasons for using LIFO in an inflationary economy.

3. Where there is evidence that the utility of inventory will be less than cost, what is the proper accounting treatment, and under what concepts is that treatment justified?