Xu Corp.started business at the beginning of 2017.Xu selected the FIFO method for its inventory.In order to maximize its profits for 2017under this method,prices must be
A)increasing.
B)decreasing.
C)stable.
D)fluctuating up and down at the same amount consistently over the year.

Question

Quizplus · Accepted Answer

Under the FIFO (First-In-First-Out) method, the cost of goods sold is based on the cost of the earliest goods purchased, and the ending inventory consists of the cost of the most recent goods purchased. Therefore, if prices are increasing, the cost of goods sold will be lower, resulting in higher profits. In contrast, if prices are decreasing, the cost of goods sold will be higher, resulting in lower profits. Thus, to maximize profits, Xu Corp. should prefer increasing prices.

Xu CorpStarted Business at the Beginning of 2017