FIFO ($2,040 – $1,790) that is the amount of the phantom profit. It is referred to as “phantom profit” because FIFO matches current selling prices with old inventory costs. To replace the units sold, the company will have to pay the current price of $8 per unit, rather than the $6 per unit which some of the units were priced at under FIFO. Therefore, profit under LIFO is more representative of what the company can expect to earn in future periods. BRIEF EXERCISE 6-7 Inventory Categories Cameras Camcorders…
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