Carrington Inc manufactures digital cameras and has experienced noticeable declines in the purchase price of many of the components it uses, including memory components. Which inventory costing method should Carrington use if it wants to maximize net income? Explain your answer
For Carrington, the use of LIFO will have the effect of maximizing net income if a company is experiencing a decline in the unit cost of inventory. Last-in, first-out charges the most recent purchases to cost of goods sold. If prices are declining, the amounts charged to cost of goods sold will be less than if either the weighted average method or FIFO is used. Because less is charged to cost of goods sold, net income will be higher.
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