It is possible to estimate the amount of inventory holding gain (or loss)that is embedded in a company's FIFO earnings number.

Question

Quizplus · Accepted Answer

Since FIFO (first in, first out) method assumes that the oldest inventory items are sold first, it calculates the cost of goods sold using the oldest cost figures first. This means that if inventory costs are rising, FIFO will result in a lower cost of goods sold and a higher gross profit. Therefore, there may be inventory holding gains (or losses) embedded in a company's FIFO earnings number.

It Is Possible to Estimate the Amount of Inventory Holding