When the cost of raw materials is increasing, FIFO accounting
A) yields higher ending inventory values than LIFO.
B) produces higher unit sales than using LIFO.
C) yields higher cost of goods sold than LIFO.
D) All of the options are true.

Question

Quizplus · Accepted Answer

When the cost of raw materials is increasing, FIFO accounting yields higher ending inventory values than LIFO. This is because FIFO assigns the most recent costs to the inventory which makes the older, lower valued inventory remain in the inventory. This leads to a higher overall value of the inventory as compared to LIFO which assigns the most recent costs to the cost of goods sold (COGS).

When the Cost of Raw Materials Is Increasing, FIFO Accounting