In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

Question

Quizplus · Accepted Answer

LIFO (last in, first out) assumes that the most recently purchased inventory items are sold first. In a period of falling prices, using LIFO will result in selling the newer, higher-priced items first, resulting in a lower cost of goods sold. This is because the older, lower-priced items remain in inventory and are not sold until later, if at all. FIFO (first in, first out) assumes that the oldest inventory items are sold first, so in a period of falling prices, using FIFO will result in selling the older, lower-priced items first, resulting in a higher cost of goods sold.

In a Period of Falling Prices, the LIFO Method Results