One of the Disadvantages of the LIFO Cost Flow Assumption

question 96

Essay

One of the disadvantages of the LIFO cost flow assumption is the impact of the liquidation of LIFO layers.
Required:
a. Explain what is meant by inventory liquidation under the LIFO cost flow assumption.
a. Inventory liquidation occurs when the number of units sold during a period exceeds the number of units purchased. The result is fewer units in ending
b. Discuss why this may be a serious problem for LIFO but not for FIFO.

---

Definitions:

Monopsony

A market condition where there is only one buyer for many sellers, giving the buyer significant power over prices and terms.

Union Shop

A workplace where employees are not required to join the union to be hired, but must join shortly after commencing employment and remain members for as long as they are employed there.

Company Towns

Communities where nearly all stores and housing are owned by the one company that is also the main employer.

AFL

American Federation of Labor, a national federation of labor unions in the United States.