"Inventory profits" are most likely to occur in an inflationary economy under which of the following inventory cost assumptions?

Question

Quizplus · Accepted Answer

FIFO (First-in, First-out) assumes that the first inventory item purchased or produced is the first one sold, which means that the cost of goods sold reflects the cost of the oldest (and likely lower-priced) inventory items. In an inflationary economy, the cost of inventory is likely to rise, so FIFO will result in a lower cost of goods sold, which will increase the reported profits. This is known as "inventory profits." The other inventory cost assumptions (weighted average, LIFO, and lower of cost or market) may also result in profits, but not as consistently or significantly as FIFO in an inflationary environment.

"Inventory Profits" Are Most Likely to Occur in an Inflationary