In a rising price environment, a company using the LIFO method assumes that the sale of a product is from the newest, highest-cost inventory.

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LIFO stands for "last-in, first-out" and assumes that the last inventory items purchased or produced are the first ones sold. In a rising price environment, the cost of the inventory tends to increase, so by assuming that the newest, highest-cost inventory is sold first, LIFO results in a higher cost of goods sold and lower taxable income.

In a Rising Price Environment, a Company Using the LIFO