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.

For this discussion, your instructor has randomly created groups of 3-5 people. As is often the case in the real business world, students cannot select with whom they would like to work. Each group has a private space to share and discuss. If any of your group members drop the course, you should continue with the rest of your group members. It is understandable that it is sometimes frustrating to work as a group, but as in the real business world, you do not have the choice to make up the team of colleagues with whom you will work. In your group space, discuss the 4 questions below.

Each member of your group must post their response to the group discussion by Wednesday at 11:59 p.m. As a group, you will discuss the individual responses and come to a group consensus. Once your group has reached a consensus, the group will create a new discussion forum in their group space called "Lesson 11 Final Answer" and post your overall consensus by Sunday at 11:59 p.m.

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?

FIFO

LIFO

Average

Specific Identification

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?

What impact, if any, is there on your choice in an economic state of increasing prices? What if the price of inventory purchases decreases?

Detail motivating factors that will influence inventory methods. Factors to consider are

physical product flow,

the matching principles,

effects on the financial statements, and

others you determine.