"LIFO makes for a smaller tax under conditions of inflation". Can you please give me an example?

Question

Can you give me an example? With the tax rate of e.g. 10% ?

Answer 1

Suppose that you are making some product.

Suppose you have two inventory choices -- LIFO or FIFO. Inflation is causing you to pay more for parts. If you make a new product, you take parts out of inventory. You sell the product for the going rate. The inventory system youuse doesn't affect the amount you take in. But it does affect the cost of making the product.

Your profit is the sales price minus the cost of making the good. If you use LIFO, then your cost will be the new price of the parts. If you use FIFO, then the cost will be the old, lower, price of the parts. Using LIFO means that your profits are lower. Since you only have to pay taxes on your profits, your taxes are lower.

Answer 2

I've answered this in another category ("Taxes", I think). Trust me, I know what I'm doing *lol*