One of the primary benefits of using FIFO when inventory costs are rising is that it results in greater tax savings.

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FIFO (first in, first out) assumes that the items purchased first are the first items sold. When inventory costs are rising, using FIFO results in higher cost of goods sold and lower profits, which reduces tax savings. LIFO (last in, first out) typically results in lower taxable income and therefore greater tax savings when inventory costs are rising.

One of the Primary Benefits of Using FIFO When Inventory