Of the three cost-flow assumptions, LIFO has the highest cost of goods sold when inventory costs are rising and the lowest cost of goods sold when inventory costs are falling.

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Quizplus · Accepted Answer

This statement is true. LIFO (last-in, first-out) assumes that the most recently purchased inventory items are sold first. When inventory costs are rising, the most recently purchased items are the most expensive, so LIFO will result in a higher cost of goods sold compared to FIFO (first-in, first-out) or average cost methods. On the other hand, when inventory costs are falling, LIFO will assume that the older, cheaper inventory items are being sold first, resulting in a lower cost of goods sold compared to FIFO or average cost methods.

Of the Three Cost-Flow Assumptions, LIFO Has the Highest Cost