Which cost-based inventory valuation system provides more relevant information about a company's gross margin and net income when the prices of inventory are rising?
A)FIFO
B)LIFO
C)Average cost
D)Specific identifications

Question

Quizplus · Accepted Answer

LIFO (last in, first out) assumes that the most recently purchased inventory is sold first, which means that the cost of goods sold is based on the highest prices paid for inventory. In a period of rising prices, this results in a higher cost of goods sold, which leads to a lower gross margin and net income. Therefore, LIFO provides more relevant information about a company's performance during an inflationary period.

Which Cost-Based Inventory Valuation System Provides More Relevant Information About