Final answer:
A company using LIFO for external reporting might prefer FIFO or average cost internally for better financial statement comparability, a more accurate reflection of inventory turnover, and to better match current replacement costs with cost of goods sold for management decisions.
Step-by-step explanation:
The question addresses a scenario in which a company utilizes the Last-In, First-Out (LIFO) method for external reporting purposes but considers using a different accounting method for internal recordkeeping. Various motivations can inspire such a discrepancy between internal and external accounting practices.
Financial statement comparability could be a reason; companies might use First-In, First-Out (FIFO) or average cost internally to compare their financial statements with competitors who do not use LIFO. Tax advantages usually motivate the use of LIFO for external reporting, as in some jurisdictions, it can lower taxable income when inventory costs are rising. However, internally, companies might prefer a method that better reflects their economic reality and helps manage the business. Regarding inventory turnover, a different method like FIFO can give a more accurate reflection of the rate at which inventory is sold and replaced.
Lastly, while LIFO can lead to higher cost of goods sold during periods of rising prices and thus lower taxable income, it might not provide the best insight for managing operations and decision-making. Therefore, a company might opt for a method internally that matches current replacement costs more closely to better inform management decisions.