Question

You are a financial adviser with a client in the wholesale produce business that just completed its first year of operations. Due to weather conditions, the cost of acquiring produce to resell has escalated during the later part of this period.

Your client, Javonte Gish, mentions that because her business sells perishable goods, she has striven to maintain a FIFO flow of goods. Although sales are good, the increasing cost of inventory has put the business in a tight cash position. Gish has expressed concern regarding the ability of the business to meet income tax obligations.

Prepare a memorandum that identifies, explains, and justifies the inventory method you recommend your client, Ms. Gish, adopt. Any sources used to the information in your memorandum should be cited using APA Style.

Answer 1

Ans.

Identification	Explanation	Justification
First-In First-Out Method	The First-In First-Out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold. Under the FIFO method, the earliest goods purchased are the first ones removed from the inventory account.	Since Javonte Gish is engaged in the business of selling perishable goods, I would suggest Javonte Gish to maintain her inventory as per First-In First-Out method. This way the goods which got into business first will be sold first, thereby reducing the loss to Javonte Gish.