Tangy Industries, a newly formed company, has hired you as a consultant. The company president, John Mills, is seeking your advice as to the appropriate inventory method the company should use to value its ending inventory and cost of goods sold. Mr. Mills is only aware of the LIFO and FIFO inventory valuations. He believes that LIFO might be better for tax purposes, but speculates that FIFO has certain advantages for financial reporting to investors and creditors. Mr. Mills advises you that the company will be profitable in its first year and for the foreseeable future.

1. Explain to Mr. Mills all inventory valuation methods. What are the advantages and disadvantages of each? Are all inventory methods available to all entities? Does industry have an impact on the inventory valuation choice?
   1. FIFO
   2. LIFO
   3. Average
   4. Specific Identification
2. What factors should you consider when choosing an inventory method? What are the different effects on ending inventory and COGS when using LIFO and FIFO?
3. What impact, if any, is there on your choice in an economic state of increasing prices? What if the price of inventory purchases decreases?
4. Detail motivating factors that will influence inventory methods. Factors to consider are
   1. physical product flow,
   2. the matching principles,
   3. effects on the financial statements, and
   4. others you determine.