Question

Shepherd Cycles used the FIFO inventory method in 2010. Shepherd Cycles plans to continue using the FIFO method in future years.

Requirements: R1. Which inventory principle is most relevant to Shepherd’s decision? R2. Shepherd Cycles does not expect prices to change dramatically and wants to use a method that averages price changes.

2. Shepherd Cycles does not expect prices to change dramatically and wants to use a method that averages price changes.

Requirements: R1. Which inventory method would best meet Shepherd’s goal? R2. What if Shepherd wanted to expense out the newer purchases of goods instead? Which inventory would best meet that need?

Answer 1

1. As per consistency principle, it is better that shepherd cycles follow FIFO method. It will be the most relevant to the shepherd's decision.
2. If they are in want to use a method that averages price changes, then the most suitable method would be weighted average method, which averages the price changes.
3. If shepherd wants to expense of newer purchases first then the method to use would be LIFO method. Where the latest purchases are sold out first and later the older purchases.
4. Therefore depending on the goals that shepherd cycles want to achieve any one of the above methods can be used.

I think all your requirements are clarified.