During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:
A) FIFO method.
B) LIFO method.
C) Weighted-average method.
D) Average cost method.
E) Specific identification method.

Question

Quizplus · Accepted Answer

FIFO method assumes that the first items purchased are the first ones sold, meaning that the cost of goods sold matches the oldest and lowest priced inventory. During a period of rising costs, using FIFO will result in lower cost of goods sold and higher net income, as it will include older, cheaper inventory in the calculation. Therefore, A) FIFO method yields the highest reported net income.

During a Period of Steadily Rising Costs, the Inventory Valuation