Does it Matter to the Consumer If You Use LIFO or FIFO
FIFO or LIFO
The type of inventory system that a company uses will always have an impact on the consumer. This is the case if they use either LIFO or FIFO system. The major difference between the two in control of inventory and classification is in terms of arrival of the inventory and when it is sold. In FIFO system, if the inventory is older, it is more important to move it off the shelves. On the other hand, the LIFO inventory system gives newer inventory more importance and must be sold before the older inventory. Thus, the older inventory will take some time before it is finally sold.
How an inventory is handled also affects how much the remaining inventory will cost the company. In most industries, the prices tend to rise over time. Thus,the arrival of an inventory earlier will cost less than that which arrives later. This affects the company’s profits margin especially if the market price does not also rise at the same rate as the initial cost.
The differences between the two systems can also significantly affect the price paid by the consumers. If a company tries to maintain a specific profit margin but still the cost of goods goes up, this would consequently increase the retail price of goods in FIFO. It could also increase the profit margin if the company decides to increase the price of goods in relation to the forces in the market. However, if there is no effect on the cost of goods, the company will not increase the retail prices. Thus the consumer will not experience any impact.
In addition to this, if a company decides to move some of its excess inventory by discounting the selling prices, this may have an impact on the consumer. This is because, if the company is using the LIFO system, it would result into deeper discounts for the consumers as costs are lower in LIFO.