Module 4 – Relevance Watch :

Article Link: https://www.nytimes.com/1981/02/25/business/the-question-of-lifo-vs-fifo.html

How is your article of choice related to topic(s) covered in our next live session?

The article brings up an ongoing debate about which costing methodology to use, LIFO or FIFO. Most
firms continue to use the FIFO method for costing, but there is an increasingly valid argument that LIFO
is the more realistic method to use. They argue that FIFO as a short-term profit mentality, which can
hurt the firm’s health in the long run. LIFO on the other hand reveals the current market price of the
products and a true cost of the product.

Why you think this article is interesting?

I was surprised to see that only one-third of companies in the world use the LIFO method currently.

Considering we are living in a time when we expect to see inflationary pressures in the economy, this
article brings about an interesting discussion on how LIFO can actually be beneficial during these times.

The LIFO method may lead to lower profits for the organization due to the expected higher costs, but it
has the advantage of revealing the true cost of a product based on the most recent market prices.
Additionally, the lower income also leads to lower taxes having to be paid, which can help organizations
during poor economic times.