LIFO's tax advantage is that
A)it provides a higher net income than FIFO during periods of rising prices and nondecreasing inventory quantities.
B)it provides a lower net income than FIFO during periods of rising prices and nondecreasing inventory quantities.
C)it provides a lower net income than FIFO during periods of falling prices and nondecreasing inventory quantities.
D)it provides a lower net income than FIFO during periods of rising prices and decreasing inventory quantities.

Question

Quizplus · Accepted Answer

LIFO (Last In, First Out) results in a lower net income than FIFO (First In, First Out) during periods of rising prices and nondecreasing inventory quantities because the cost of goods sold (COGS) is higher with the most recently acquired (and thus more expensive) inventory being sold first. This lower net income leads to a tax advantage by reducing taxable income.

LIFO's Tax Advantage Is That