If merchandise inventory is being valued at cost and the price level is steadily falling, which method of costing will yield the largest gross profit?
A) Average cost
B) LIFO
C) FIFO
D) All methods will generate the same gross profit.

Question

Quizplus · Accepted Answer

LIFO (Last In, First Out) assumes that the last items purchased are sold first, which means that the cost of goods sold will reflect the most recent (highest) cost of inventory. As the price level is falling, the cost of the most recent inventory will be the highest, causing the cost of goods sold to be lower compared to FIFO (First In, First Out) and average cost methods. Lower cost of goods sold will result in a higher gross profit. Therefore, LIFO method will yield the largest gross profit in this scenario.

If Merchandise Inventory Is Being Valued at Cost and the Price