Similar to the example of FIFO and LIFO inventory accounting methods, a college store purchased sweatshirts for the upcoming fall semester. Using the following data, where a total of 100 sweatshirts were purchased by the store and placed in inventory, select the correct statement from the following choices.
A) FIFO would provide the least profit.
B) FIFO would provide the most profit.
C) LIFO or FIFO will produce the same amount of profit.
D) LIFO would provide the most profit.

Question

Similar to the example of FIFO and LIFO inventory accounting methods, a college store purchased sweatshirts for the upcoming fall semester. Using the following data, where a total of 100 sweatshirts were purchased by the store and placed in inventory, select the correct statement from the following choices. 
A) FIFO would provide the least profit. 
B) FIFO would provide the most profit. 
C) LIFO or FIFO will produce the same amount of profit. 
D) LIFO would provide the most profit.

Quizplus · Accepted Answer

Under FIFO (First-In, First-Out) method, the oldest inventory is sold first. In the case of sweatshirts, this would mean that the ones purchased first would be sold first, and the newer ones would remain in inventory. As prices of inventory items tend to rise over time, using FIFO would result in higher profits as the newer, higher-priced sweatshirts would not be sold until the older, lower-priced ones are sold first. Therefore, the correct statement is that FIFO would provide the most profit.

Similar to the Example of FIFO and LIFO Inventory Accounting