Determining LIFO Liquidation Profit or Loss: WipeOut Ski Company Scenario
What is Last-In, First-Out (LIFO) inventory accounting?
Last-In, First-Out (LIFO) is a method of inventory accounting where the last inventory items purchased or produced are the first to be used or sold.
How does LIFO liquidation impact a company's profit or loss?
LIFO liquidation can affect a company's profit or loss by using older, potentially lower-cost inventory to fulfill sales when the current inventory is insufficient.
Answer:
Without specific inventory costs or quantities for 2024 and 2025, we cannot determine the LIFO liquidation profit or loss for those years. The scenario provided by WipeOut Ski Company involves producing 5 units at $25 each, and the profitability depends on the relationship between total production costs and revenue.
To determine the LIFO liquidation profit or loss for 2024 and 2025, an understanding of Last-In, First-Out (LIFO) inventory accounting is required. However, the lack of specific details about inventory costs or quantities for those years makes it impossible to calculate the exact profit or loss.
A LIFO liquidation occurs when a company sells more inventory than it has purchased or produced, leading to the use of older inventory at potentially lower costs. Without knowing the inventory details, it's unclear whether the company will experience a profit or loss.
To assess profitability in scenarios like the WipeOut Ski Company, where 5 units are sold at $25 each, additional data on production costs is necessary. If the total costs of producing 5 units are less than $125, the company makes a profit; if higher, it incurs losses. Comparing selling price to average cost per unit aids in quick profitability assessment.