Thanks for your comment. With the rising costs, the use of FIFO would result in a lower cost of goods sold than the LIFO method. If the cost of goods is lower, then net income will be higher. Companies with higher inventory prefer to use the LIFO method because of the tax advantage of lower taxes. The LIFO method lowers the net income.

Theres a clearer picture of the ending inventory with the FIFO method but it also increases the net income because older inventory is used in the cost of goods sold (COGS). So, if the manager decides to use the method because it will increase net income and as such increase his annual bonus, it would be unethical if he fails to inform his superiors that such an action will also increase the taxes the company will pay.

The LIFO method is typically not a good indicator of the ending inventory because it may understate the value of inventory, however the executive has to be aware that the method will result in lower net income which also reduces the tax liability of the company because of higher COGS.

What is some other information not stated above regarding LIFO and FIFO?