Andersons Outdoor Equipment Inc has recently opened for bus

Anderson\'s Outdoor Equipment, Inc., . has recently opened for business. The owners are trying to determine which inventory costing method to pay the least amount of income taxes possible. Which inventory method will allow Anderson\'s Outdoor Equipment, Inc., to pay the least amount of taxes? They would like to If inventory costs are expected to decrease, if inventory costs are expected to remain constant

Solution

Answer:

If Inventory Costs are expected to increase, Anderson’s Outdoor Equipment, Inc. should choose LIFO. If Inventory costs are expected to decrease, Anderson’s Outdoor Equipment, Inc. should choose FIFO. If Inventory costs are expected to remain constant, the choice of inventory costing method will have no effect on the net income for the period.

Explanation:
In case of increase in Inventory costs, the company should choose LIFO method, as goods purchased at higher amount will be deemed to sold first, which will increase the Cost of goods sold leading to decrease in Income and Income Tax payable thereafter.