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In accounting does the LIFO method change. Sometimes it means the oldest is first, sometimes it...

In accounting does the LIFO method change. Sometimes it means the oldest is first, sometimes it means the most recent?

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Last in First Out(LIFO)Method :

In this method, the materials received last are issued first. Thus, under this method, the price of the last purchase is used for pricing the materials until the entire quantity from the lot is used up. After this , the price of the just previous purchase lot becomes the issue price.

Advantages:

1) Since materials are charged at recent prices, cost of production reflects current market trend and the price quoted for products become competitive

2) Being an actual cost method, it ensures complete recovery of material cost from production.

3) It is more useful during the period of rising prices, because it does not inflate profits

4) It is suitable when purchases are not too many and the prices are either steady or are rising.

Demerits:

1) when there is high fluctuation in rates, calculation become complicated

2) The work of pricing is delayed, if the latest receipt rate is not readily available

3) Closing stock valued at cost which does not represent current conditions.

ekkarill92 answered 1 year ago
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