Question
During the economic slowdown of 2008 the U.S. consumer price index was a mere .1 percent but by 2011 the CPI was 3 percent and
During the economic slowdown of 2008 the U.S. consumer price index was a mere .1 percent but by 2011 the CPI was 3 percent and is expected to remain around that level through 2012. However, some economic forecasters can't seem to agree on the future trend. One group predicts that the inflation rate will double over the next couple of years to 6 percent. The other group seems to believe that there won't be any inflation or maybe even a slight amount of deflation. The cost of goods sold at your family-owned menswear shop mirrors the country's inflation rate, so based on the two forecasts you expect your costs to either remain constant or to increase by 6 percent. Your father asks you to prepare a memo detailing how either of these two forecasts will impact the profitability of the business if it continues to use a FIFO method of valuing inventory.
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