Michigan Motors is considering which inventory costing method it should use. The business wants to show the highest Merchandise Inventory balance during a period of declining costs. Which inventory method should Michigan Motors select? Discuss your selection.
What will be an ideal response?
Michigan should select the last-in, first-out inventory costing method (LIFO). Under LIFO, the ending inventory consists of the earliest costs. During a period of declining costs, the earliest costs are higher and will thus cause ending Merchandise Inventory to be higher than computations using FIFO or weighted-average.
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What will be an ideal response?
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