During periods of rising prices, firms that want to report more attractive profits would tend to favor the FIFO technique of inventory valuation.

Question

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In a period of rising prices, the last inventory purchased would cost more than earlier purchases of the same items. The FIFO (items purchased earlier) approach will yield a lower cost of goods sold figure. This will cause the net income to be greater than if the LIFO method had been used.

During Periods of Rising Prices, Firms That Want to Report