Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic cost of goods sold. Which inventory costing method should Ace consider using?
A) Average because all inventory costs will then represent an average amount.
B) Specific identification is the most realistic method because it involves the actual costs.
C) LIFO because cost of goods sold represents the latest costs.
D) FIFO because cost of goods sold represents the earliest costs.

Question

Quizplus · Accepted Answer

In an inflationary environment, LIFO (Last-In, First-Out) provides the most realistic cost of goods sold because it matches the most recent (and typically higher) costs against current revenues, reflecting the current cost environment more accurately.

Ace Company Is a Retailer Operating in an Industry That