Taylor Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory in the year of the change?
A) increased ending inventory
B) decreased ending inventory
C) no change in ending inventory
D) cannot be determined from the information given

Question

Quizplus · Accepted Answer

In a period of rising prices, LIFO assumes that the last units purchased are the first ones sold, which means that the ending inventory value will be based on the cost of the oldest units purchased. This generally leads to a lower ending inventory value compared to FIFO, which assumes that the first units purchased are the first ones sold. Therefore, the change from FIFO to LIFO would result in a decreased ending inventory value.

Taylor Company Changed Its Inventory Cost Flow Assumption from FIFO