The two inventory cost formulas will result in the following comparative effects on profit during a period when prices are rising: $\quad $FIFO $\quad $$\quad $Average A) Higher$\quad $$\quad $ no effect B) Higher$\quad $$\quad $ lower C) Lower$\quad $$\quad $ higher D) No effect $\quad $No effect

Question

Quizplus · Accepted Answer

During a period of rising prices, the FIFO (First-In, First-Out) method will result in higher profits because the older, cheaper goods are recorded as sold first, leading to lower cost of goods sold (COGS) and higher profits. The Average Cost method spreads the cost of goods sold over the period, resulting in a moderate COGS and therefore, lower profits compared to FIFO.

The Two Inventory Cost Formulas Will Result in the Following \quad

The Two Inventory Cost Formulas Will Result in the Following $\quad$