In a period of rising prices the inventory reported in Sinatra Company's balance sheet is close to the current cost of the inventory. Crosby Company's inventory is considerably below its current cost. Identify the inventory cost flow method being used by each company. Which company has probably been reporting the higher gross profit?

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Zybrea Knight · Accepted Answer

Final Answer : Sinatra Company is using the FIFO method of inventory costing and Crosby Company is using the LIFO method. Under FIFO the latest goods purchased remain in inventory. Thus the inventory on the balance sheet should be close to current costs. The reverse is true of the LIFO method. Crawford Company will have the higher gross profit because cost of goods sold will include a higher proportion of goods purchased at earlier (lower) costs.

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