When the cost of raw materials is increasing, FIFO accounting
A) yields higher ending inventory values than LIFO.
B) produces higher unit sales than using LIFO.
C) yields higher cost of goods sold than LIFO.
D) All of these.

Question

Quizplus · Accepted Answer

When the cost of raw materials is increasing, FIFO accounting yields higher ending inventory values than LIFO. This is because FIFO assumes that the oldest units are sold first, leaving the newest (and often more expensive) units in inventory. As a result, ending inventory is valued at the most recent prices, which are typically higher during times of increasing raw material costs.

When the Cost of Raw Materials Is Increasing, FIFO Accounting