Question

My choice is Dairy Queen

• Use the Internet to research the annual report of at least one (1) merchandising company. For example, while you can’t use this one, here is one from Walmart.
• Determine which costing method (Last In First Out [LIFO], First In First Out [FIFO], or weighted average cost) is used to record inventory by your selected company.
• Share three (3)advantages and three (3)disadvantages of using the type of costing method (LIFO, FIFO, and weighted average) that the company has implemented.
• Provide support for your response.

Answer 1

In the Walmart case, quotation from annual report – accounting policies regarding inventory:

As per the the Company’s annual report, they values inventories at the lower of cost or market as determined primarily by the retail inventory method of accounting, using the last-in, first-out (LIFO) method for substantially for all of the Walmart U.S. segment’s inventories.

Also, the inventory at the Walmart International segment is valued primarily by the retail inventory method of accounting, using the first-in, first-out (FIFO) method.

The advantages of LIFO are : 1. Expenses are booked at the current price, 2. Results in lower tax burden, 3. Accuracy of the profit or loss margin.

The dis-advantages of LIFO are : a. the closing stock contains old prices so not comparable, b. increase in clerical works.

The advantages of FIFO are : i)The closing stock is valued at the current market prices. ii) the normal process of utilizing the inventory. iii) Actual profit or loss in a chronological order.

The dis-advantages of FIFO are : A. It involves more and more clerical work. B. It makes comparison difficult for the two jobs while allotting the prices. C. in the situation of inflationary or deflationary, the system is not suitable as it makes huge gap of cost between two jobs.