Discussion 1: The Video Summary – Three Primary Concepts

Question

Discussion 1per The Video Summary There Are Three 3 Primary Invento Per the video summary, there are three (3) primary inventory costing methods used by companies: LIFO, FIFO, and Weighted Average. With each method comes a number of pros and cons that a company must consider when implementing its inventory management strategy. Select a company below and discuss the advantages associated with its chosen inventory costing method. Target - Uses LIFO Amazon - Uses FIFO FedEx - Uses Weighted Average

Dr. Jack HW Helper · Accepted Answer

Inventory management is a critical component of a company's financial strategy, affecting cost of goods sold (COGS), profit margins, and tax liabilities. The selection of an inventory costing method determines how inventory costs are allocated and can influence a company's financial reporting and operational effectiveness. Among the primary methods—LIFO (Last-In, First-Out), FIFO (First-In, First-Out), and Weighted Average—the choice depends on the industry, market conditions, and specific company needs. Amazon’s Use of FIFO Amazon, one of the most prominent e-commerce giants worldwide, employs the FIFO inventory costing method. This approach assumes that the oldest inventory items are sold first, which aligns well with Amazon’s high-volume, fast-paced retail operations. FIFO offers several advantages for Amazon, including accurate reflection of current costs on financial statements and better inventory valuation during periods of rising prices. As Amazon continually stocks a diverse array of products—from electronics to clothing—the FIFO method ensures that the inventory on the balance sheet closely mirrors recent market prices, providing investors with more relevant financial data. One of the primary benefits of FIFO for Amazon is that it results in higher reported net income during periods of inflation. Since older, less expensive inventory is expensed first, the cost of goods sold is lower, thereby boosting profitability. This advantage can attract investors and improve the company's stock valuation. Furthermore, FIFO simplifies inventory management by adhering to the natural flow of goods, reduces the potential for obsolescence for newer stock, and aligns with Amazon’s emphasis on efficiency and rapid turnover. However, FIFO is not without its drawbacks. During inflationary periods, it can lead to higher tax liabilities due to increased profits. Moreover, on the balance sheet, FIFO may overstate inventory values since older costs are recorded, which might not r

Discussion 1: The Video Summary – Three Primary Concepts ✓ Solved

Discussion 1per The Video Summary There Are Three 3 Primary Invento

Sample Paper For Above instruction

Amazon’s Use of FIFO

Comparison with Other Methods

Conclusion

References