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The Hiller company uses the FIFO method of inventory costing because it wants to maintain a high current ratio during periods of inventory valuation. The FIFO method means first in, first out method which assumes that the first product that was purchased are also the first ones to be sold.

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Hiller Company uses the FIFO method of inventory costing because it wants to maintain a high current ratio during periods of Inflation.

FIFO means first in, first out, it is a technique that is used by companies to manage inventory and financial issues. FIFO is a valuation method in which materials or assets that a firm procured first are used, sold or are first disposed of.

Further Explanation

This method can be used for tax purposes, the evaluation method (FIFO) assumes that items that are acquired first are contained in the firm’s income statement cost of goods sold.

FIFO method can be used for many purposes and it has numerous benefits.

Some of the advantages of FIFO include:

  • FIFO method can be applied easily
  • The valuation method can be used for cost flow assumption and it always matches the physical flow of goods
  • Income can't be manipulated
  • The amount on the balance sheet for inventory may likely be equal to the current market value

The main idea behind FIFO is to avoid obsolescence; a firm disposes the oldest asset first and retains the assets that are still new in inventory.

Therefore, Hiller Company uses the FIFO method of inventory costing because it wants to maintain a high current ratio during periods of Inflation.

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KEYWORDS:

  • fifo
  • evaluation method
  • oldest asset
  • inventory
  • inflation

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