In periods of falling prices, FIFO will result in a higher cost of goods sold than the average cost formula.

Question

Quizplus · Accepted Answer

This is because FIFO assumes that the first units purchased are the first units sold, resulting in the use of the higher-priced inventory in times of falling prices. Meanwhile, the average cost formula takes into account the cost of all units purchased, resulting in a lower cost of goods sold.

In Periods of Falling Prices, FIFO Will Result in a Higher