In a period of rising prices, FIFO will have
A) lower net income than average-cost.
B) lower cost of goods sold than average-cost.
C) lower income tax expense than average-cost.
D) lower net purchases than average-cost.

Question

Quizplus · Accepted Answer

FIFO (first-in, first-out) assumes that the first items purchased are the first ones sold. During a period of rising prices, this means that the cost of goods sold will be based on the lower prices of the older inventory. This results in a lower cost of goods sold and higher net income when compared to average-cost. Therefore, the choice is B - lower cost of goods sold than average-cost.

In a Period of Rising Prices, FIFO Will Have