Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic ending inventory. Which inventory costing method should Ace consider using?
A) Average because all inventory costs will then represent an average amount.
B) Specific identification is the most realistic method because it involves the actual costs.
C) LIFO because ending inventory represents the earliest costs.
D) FIFO because ending inventory represents the latest costs.

Question

Quizplus · Accepted Answer

In an inflationary environment, FIFO (First-In, First-Out) results in ending inventory being valued at the most recent (and thus higher) costs, providing a more realistic value of inventory.

Ace Company Is a Retailer Operating in an Industry That