Firms that use FIFO inventory cost assumptions always include some realized holding gains in reported income in periods of
A)level prices.
B)deflation.
C)falling prices.
D)rising prices.

Question

Quizplus · Accepted Answer

FIFO assumes that inventory costs increase over time with rising prices, which means the oldest and cheapest inventory is sold first. In periods of rising prices, this leads to a lower cost of goods sold and higher profit margins, which includes realized holding gains from the lower-cost inventory sold.

Firms That Use FIFO Inventory Cost Assumptions Always Include Some