During a period of steadily falling prices, which inventory cost flow assumption results in reporting the lowest net income?
A) Specific identification
B) Average cost
C) Weighted-average
D) FIFO
E) Retail method

Question

Quizplus · Accepted Answer

During a period of steadily falling prices, the FIFO (First In, First Out) method results in reporting the lowest net income because it assumes that the oldest inventory (which was acquired at higher prices) is sold first, leaving the more recently acquired (lower cost) inventory in stock. This leads to higher cost of goods sold and lower net income compared to other methods.

During a Period of Steadily Falling Prices, Which Inventory Cost