Pollet Company started business at the beginning of 2012. Pollet selected the FIFO method for its inventory costing. The profits will maximize for 2012 under this method, in a period of:
A) rising prices.
B) declining prices.
C) stable prices.
D) prices fluctuating up and down at the same amount consistently throughout the year.

Question

Quizplus · Accepted Answer

The FIFO method assumes that the first items purchased are the first items sold, which means that the cost of goods sold will reflect the current, higher prices of inventory. This will result in higher profits during rising prices, making it the best choice for Pollet Company in a period of rising prices.

Pollet Company Started Business at the Beginning of 2012