Assuming inflation,if a company wanted to maximize net income,it would select which of the following inventory valuation methods?
A)FIFO
B)LIFO
C)Weighted-average
D)The selection of an inventory valuation method does not affect the net income.
E)Specific identification

Question

Quizplus · Accepted Answer

Assuming inflation, the prices of goods increase over time. This means that the cost of goods sold (COGS) will be lower if the oldest, cheaper inventory is sold first (FIFO - first in, first out method). This results in a higher gross profit margin and, ultimately, higher net income. LIFO (last in, first out) assumes that the newest, most expensive inventory is sold first, resulting in a higher COGS and lower net income. Weighted-average method is a compromise between FIFO and LIFO, but may not be the most effective method in times of inflation. Specific identification is not practical for all companies and may not be a viable option for inventory valuation.

Assuming Inflation,if a Company Wanted to Maximize Net Income,it Would