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

Question

Quizplus · Accepted Answer

FIFO (first in, first out) assumes that the oldest items in inventory are sold first, which means that the cost of goods sold will be based on the oldest and cheapest items in inventory. As the price level is continuously rising, the cost of the oldest items will be lower than the cost of the items acquired later. Therefore, FIFO will yield the highest inventory value because it values the inventory based on the oldest and cheapest items.

If Merchandise Inventory Is Being Valued at Cost and the Price