You just finished a telephone conversation with one of your clients, who has decided to expand her business by beginning to offer some merchandise for sale. Previously, the company had only been a consulting business, but now it has an opportunity to sell some product from a new line offered by one of its clients.
The client's question to you seems rather simple, at least in her eyes. Which inventory costing method should the client use that will give the highest amount of net income? Because the consulting part of the business has not been doing very well lately, the company wants to have a lot of net income from this new side of the business so that the income statement will look good at the end of the year. The company has heard that either the LIFO or FIFO inventory method will result in higher net income, but it is not certain which one it is. Plus, the company definitely plans to always sell the oldest merchandise first, so will this have any impact on which method it chooses? The question does seem simple, but is the answer simple?
Requirement
Respond to your client either with a memo, a letter, or an e-mail?