Call I 25 01 21 with Sol

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4 Accounting Finance and Control - Prof. Arena Written test Call I– 25th January 2021 Q1_POINTS 2 Company Essex is evaluating the possibility of changing its inventory policy (shifting from LIFO policy to FIFO policy) as it is planning to move to international standards. Company Essex is preparing the operating budget for the year (X +1) and wants to u nderstand possible differences in the key figures of the operating budgets due to the adoption of the FIFO logic versus LIFO logic for evaluating its inventories (starting from year X+1). Company Essex does not keep inventories of work in progress and fina l products, but only of raw materials. Given this premise, which of the following sentences is correct? a) The adoption of LIFO or FIFO logic is NOT a relevant piece of information for drafting the operating budgets. b) If the value of final inventory of raw materials of year (X) is lower than that at the end of year (X+1) there is NO difference in the EBIT of the year (X + 1) if the company switches from LIFO to FIFO logic (whatever the purchasing price of the raw materials in the two years). c) If the final inventory of raw material of year (X) is 0 and the final inventory of raw material of year (X+1) is > 0, and the price of the raw materials purchased in the year (X+1) varies month by month, there is NO difference in the EBIT of the year (X + 1) if the com pany switches from LIFO to FIFO logic. d) If the final inventory of raw material of year (X) is greater than 0, while it is null at the end of year (X+1) there is NO difference in the EBIT of the year (X+1) if the company switches from LIFO to FIFO logic. Solution: a) Wrong, because the policy adopted for the inventories affect the operating budgets b) Wrong, because there have been purchases in year (X+1) and…