In a period of rising prices, which inventory cost flow method will produce the lowest amount of cost of goods sold?
A) FIFO.
B) Weighted average.
C) LIFO.
D) All methods will produce the same amount of cost of goods sold.

Question

Quizplus · Accepted Answer

In a period of rising prices, the FIFO (first-in, first-out) method will produce the lowest amount of cost of goods sold because it assumes that the oldest inventory items are sold first, which have lower costs compared to the newer inventory items. This results in a higher value of ending inventory and a lower value of cost of goods sold. On the other hand, LIFO (last-in, first-out) assumes that the newest inventory items are sold first, resulting in a higher cost of goods sold and a lower value of ending inventory. Weighted average takes into account the cost of all inventory items and calculates the average cost per unit, which might not reflect the actual cost of the older inventory items. Hence, the best choice in this scenario is A) FIFO.

In a Period of Rising Prices, Which Inventory Cost Flow