When inventory costs are rising,a company using the LIFO costing method will generally pay less taxes than if the company had been using the FIFO method.

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In times of rising inventory costs, LIFO (Last-In-First-Out) method assumes that the most recently purchased inventory is sold first, resulting in higher cost of goods sold and lower ending inventory value, leading to lower taxable income and consequently, lesser taxes. In contrast, FIFO (First-In-First-Out) method assumes that the oldest inventory is sold first, resulting in lower cost of goods sold and higher ending inventory value, leading to higher taxable income and taxes paid.

When Inventory Costs Are Rising,a Company Using the LIFO Costing