why LIFO could lead to tax savings than FIFO? Thanks.
In LIFO, COGS are higher as we assume that Prices are rising. if COGS r higher, Operating income is less and so taxes are less.
LIFO costs of goods sold will be higher than FIFO so your net income on the IS will obviously be lower. If your net income is lower you will be taxed on a smaller amount and your overall cashflows will be higher.
It is worth stating that it could lead to higher tax if costs are falling. You probably mastered it by now. But just thought I mention it so that you make sure you don’t take it as is. Most questions in mocks and books I have seen assume rising costs… But that does not meen on the exam they wont assume fallings costs…That would trick some people who memorize things and dont get the reason behind them.