This inventory method produces the lowest income tax during a period of inflation.

Question

Quizplus · Accepted Answer

LIFO (last-in, first-out) is the best choice during a period of inflation because it assumes that the items purchased most recently are sold first, resulting in a higher cost of goods sold and therefore a lower taxable income. This is because the prices of goods are expected to rise during inflation, so the goods purchased more recently will have a higher cost and reduce the taxable income more than the older, cheaper goods under FIFO (first-in, first-out) or weighted-average methods.

This Inventory Method Produces the Lowest Income Tax During a Period