In a period of rising prices,a company is most likely to use the FIFO method of pricing inventory if:
A)Each item in the inventory is unique.
B)Management wants the same unit cost assigned to items sold and items remaining in inventory.
C)Management's primary objective is to minimize income taxes.
D)Management wants the company's income statement to indicate the highest possible amounts of gross profit and net income.

Question

Quizplus · Accepted Answer

In a period of rising prices, using the FIFO (First-In, First-Out) method results in older, lower-cost inventory being charged to cost of goods sold first, leaving the newer, higher-cost inventory on the balance sheet. This leads to higher reported gross profit and net income because the cost of goods sold is lower relative to selling prices. Options A, B, and C do not directly relate to the benefits of using FIFO in a period of rising prices for the purpose of maximizing reported profits.

In a Period of Rising Prices,a Company Is Most Likely