The use of the FIFO method generally increases taxable income:

Question

Quizplus · Accepted Answer

The FIFO (first-in, first-out) method assumes that the first inventory items purchased are also the first ones sold. When prices are increasing, this means that the older inventory items (which were purchased at a lower cost) are being sold first, and the newer inventory items (which were purchased at a higher cost) are being held in inventory. As a result, the cost of goods sold is higher under the FIFO method, which in turn increases taxable income. Therefore, choice C is the best answer.

The Use of the FIFO Method Generally Increases Taxable Income