Madlock Company, which started business at the beginning of 2019, selected the FIFO method for its inventory costing. In order to maximize profits for 2019 under this method, purchase prices must be

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Under the FIFO method, the cost of goods sold is calculated based on the assumption that the first items purchased are the first items sold. Therefore, as purchase prices increase, the cost of goods sold will also increase, leading to a lower net income. On the other hand, if purchase prices are decreasing or stable, the cost of goods sold will be lower, resulting in a higher net income. Therefore, to maximize profits under the FIFO method, purchase prices must be increasing.

Madlock Company, Which Started Business at the Beginning of 2019