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I think NIFO applies only to variable costs. Fixed costs are fundamentally different. Also, low-volume items like aircraft carriers are probably a bad example.
by philwelch 5y ago
I think NIFO applies only to variable costs. Fixed costs are fundamentally different.
Also, low-volume items like aircraft carriers are probably a bad example. Aircraft carriers are ordered and built in small, specific quantities; I think it makes more sense to account for building a single aircraft carrier as a construction project rather than as a unit of mass production. Almost like you were building a small airport, thousands of units of housing, and a nuclear power plant.
- tgb 5y agoBut my point was that variable but decreasing costs seem to throw NIFO off too. Aircraft are the extreme example but I'm sure the first of Tesla's latest car model costs more to produce than the thousandth. Not even counting capital expenses but just by things running smoother with practice. NIFO seems to fall short here too.
- philwelch 5y agoI’m not sure that’s always or necessarily true. The variable costs will go down over time if there are process improvements, but eventually there are diminishing returns to those. Meanwhile, the cost of materials and labor could rise.
- tgb 5y agoSure it's not 100% of the time but that's besides the point still. Isn't NIFO a bad fit for the times when per-unit costs are decreasing? And since this happens fairly regularly it seems like a bad choice period, or at least not obviously better than FIFO or LIFO.