When prices are rising, net income calculated by using the last-in, first-out method is smaller than the amount determined from using either the first-in, first-out or the weighted-average method.

Question

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The last-in, first-out (LIFO) method assumes that the last items purchased are the first ones sold. Therefore, when prices are rising, the cost of goods sold will reflect the higher costs of the most recently purchased items, leading to a lower net income compared to the first-in, first-out (FIFO) or weighted-average methods.

When Prices Are Rising, Net Income Calculated by Using the Last-In