Quayle Corporation's inventory cost on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out.Assuming no beginning inventory, in what direction did the cost of purchases move during the period?
A)Up
B)Down
C)Steady
D)Cannot be determined

Question

Quizplus · Accepted Answer

Using first-in, first-out (FIFO) assumes that the inventory sold is composed of the oldest items in stock, while using last-in, first-out (LIFO) assumes that the inventory sold is composed of the newest items in stock. If Quayle Corporation's inventory cost was lower using FIFO than it would have been using LIFO, it suggests that the cost of purchases moved down during the period. This means that the items purchased earlier (at lower costs) were sold first, and the more expensive items purchased later were still in stock at the end of the period.

Quayle Corporation's Inventory Cost on Its Balance Sheet Was Lower