In a period of falling prices, which inventory method generally provides the lowest amount of net income?
A) Average cost.
B) Moving average.
C) FIFO.
D) Specific identification.

Question

Quizplus · Accepted Answer

In a period of falling prices, FIFO (First-In, First-Out) inventory method generally provides the lowest amount of net income. This is because the earliest (and presumably highest-priced) inventory items are sold first, leaving the lower-priced items in inventory. As a result, the cost of goods sold is calculated using the higher prices, resulting in a lower gross profit and net income.

In a Period of Falling Prices, Which Inventory Method Generally