Module 06 Project - Project Summary: USE ATTACHMENT TO CONPLETE THIS ASSIGNMENT!

Costing Methods

Name: Rodney Wheeler

Institution: Rasmussen College

Course: A332/ACG3357 Section 02 Accounting for Business Managers

Date: 05/28/2017

Ford Motor

The company posted a net income of $4,596 in the year 2016. This was a decrease in profitability in comparison to $7,373 in 2015. The reduction of the profitability in 2016 was because of an increase in the costs and expenses that the company incurred. The company had more revenues in 2016 yet the company’s profitability reduced. The income statement shows that there is an issue of expenses that the company needs to look at. The company has increased their liquidity in 2016. There was also an increase in its liabilities. The balance sheet shows that the company finances the company more through debt in comparison to equity. The company is therefore at risk due to the huge debt burden. The company, however, is well able to pay its interest expense and is therefore able of covering the debt. The company’s hugest cash flow is from the net income. The company has good cash flow from the cash flow statement.

There are three methods of costing that are used. The first is the First in First out (FIFO), Last in First out (LIFO) and Average cost method. Different methods are used by different companies. In the first assignment, we covered Ford Motor Company. The company uses two types of costing system which are the LIFO and FIFO systems. Using the LIFO system, the inventory that comes in last is the first to be sold. In the FIFO system, the inventory that is bought by the company first is sold the first to the company’s customers. The average inventory system considers the weight of the entire inventory. Ford Motor Co. deals with the sale of automobiles and commercial vehicles. 30% of the company’s inventory is measured using the LIFO method while the rest of the inventory is measured using FIFO (Johnson, 2014). 

The two inventory costing methods have various advantages. The LIFO is beneficial to the company as it increases the cost of goods sold and reduces the inventory recorded on the balance sheet. An increase in the cost of goods reported leads to less amount that the company has to pay income tax. The company sells its old model and its new model of cars. There are different customers that the company has who have different taste. The LIFO would report the sale of new models, and the FIFO would report the sale of the older models. FIFO method has the advantage that it is used to record the sale of the old and outdated models (Johnson, 2014). 

References

Johnson, P. F. (2014). Purchasing and supply management. McGraw-Hill Higher Education.