In certain questions, it is asked whether ending inventory, COGS, gross profit etc are higher or lower under FIFO and LIFO. But we know certain things already, i.e., under LIFO, COGS are higher, gross profit is lower et al. So when such a question comes up with values and calculations implied, is it better to just apply the pre-existing concepts or should we be safer and do the calculations? Just wondering. Though, paranoid me will do the calculations too eitherways.

@sidmenon I think its way better to go conceptually because you know that Inflationary environment: prices going up LIFO --> last in first out so you're expensing the expensive stuff from closer to current time FIFO --> first in first out so you're expensing cheaper stuff Weighted average --> averages (expense is in between the number you would get for LIFO and FIFO) opposite for deflationary environment (decreasing prices) LIFO -->expensing expensive stuff FIFO --> expensing cheaper stuff the above is directly related to COGS Gross profit = revenue minus COGS so reverse relationship with the above (i.e. if COGS up, Gross profit down)

Apply concepts you should be able to eliminate options easily. If you've time just calculate to be sure I suppose.

FIFO/LIFO - CFA Level 1

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This topic has 5 replies, 4 voices, and was last updated Apr-17 by Snippy.

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- Snippy
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  - CFA Level 2
  20 Apr 2017 at 5:37 pm
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  In certain questions, it is asked whether ending inventory, COGS, gross profit etc are higher or lower under FIFO and LIFO.
  But we know certain things already, i.e., under LIFO, COGS are higher, gross profit is lower et al. So when such a question comes up with values and calculations implied, is it better to just apply the pre-existing concepts or should we be safer and do the calculations?
  
  Just wondering. Though, paranoid me will do the calculations too eitherways.
- Sophie Macon
  Keymaster
  20 Apr 2017 at 5:52 pm
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  Apply concepts you should be able to eliminate options easily. If you’ve time just calculate to be sure I suppose.
- lulu123
  Participant
  20 Apr 2017 at 6:57 pm
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  @sidmenon
  
  I think its way better to go conceptually because you know that
  
  Inflationary environment: prices going up
  LIFO –> last in first out so you’re expensing the expensive stuff from closer to current time
  FIFO –> first in first out so you’re expensing cheaper stuff
  Weighted average –> averages (expense is in between the number you would get for LIFO and FIFO)
  
  opposite for deflationary environment (decreasing prices)
  LIFO –>expensing expensive stuff
  FIFO –> expensing cheaper stuff
  
  the above is directly related to COGS
  
  Gross profit = revenue minus COGS
  
  so reverse relationship with the above (i.e. if COGS up, Gross profit down)
- Sarah
  Participant
  20 Apr 2017 at 8:55 pm
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  @SidMenon I use my intuition to ensure to make my calculations match what I think the answer is.
  This is useful when they throw a curve such a most likely/least likely.
  So if the calculation doesn’t match the answer I think it should be I know I read the question wrong. lol – which I seem to do way too often for my liking.
- Snippy
  Participant
  - CFA Level 2
  20 Apr 2017 at 7:37 pm
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  I know the concepts properly, so I think i’ll just quickly do the calculations to confirm my answer.
- Snippy
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  - CFA Level 2
  21 Apr 2017 at 4:12 am
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  Haha, i like your alternative too 😛
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