Should We Adopt LIFO?
You are the controller of the Ford Steel Co. The economy enters a period of high inflation. Although profits are higher this year than last, you realize that the cost to replace inventory is also higher. You are aware that many companies are changing to the LIFO inventory method to save taxes in the current year, but you are concerned that what goes up will eventually come down, and when prices decline, the LIFO method will result in higher taxes. Because declining prices are usually equated with economic recession, it is likely that the higher taxes will have to be paid at a time when revenues are declining. What factors should you consider before making a change to LIFO? Based on the above considerations, what would you recommend?