In a period of inflation (prices are rising), which inventory cost formula will result in higher profit?
A)FIFO
B)Average cost
C)Cost of goods sold for the period will be the same under both formulas.
D)There would be no effect on profit.

Question

Quizplus · Accepted Answer

In a period of inflation, prices are rising. FIFO assumes that the first units purchased are the first ones sold, resulting in the newest and more expensive units being left in inventory. Therefore, when the cost of goods sold is calculated, it will be lower using FIFO, resulting in a higher profit.

In a Period of Inflation (Prices Are Rising), Which Inventory