If the goal of a business is to pay lower taxes on its income during an inflationary period, it is likely to use the FIFO inventory costing method.

Question

Quizplus · Accepted Answer

During a period of inflation, prices are rising. Using a LIFO method of inventory valuation will produce a lower gross profit, and subsequently, a lower net income before taxes. Taxes are paid only on the net income produced, after all expenses (including depreciation) are deducted.

If the Goal of a Business Is to Pay Lower