When costs are rising over time:
A) LIFO results in higher profits that FIFO.
B) Cost of goods sold using the weighted average method will be greater than LIFO cost of goods sold.
C) ending inventory balances will be greater under LIFO.
D)FIFO results in higher profits than LIFO.

Question

Quizplus · Accepted Answer

When costs are rising over time, FIFO results in higher profits than LIFO because under FIFO, the cost of goods sold will include older, lower cost inventory which results in a lower cost of goods sold and higher profits. On the other hand, under LIFO, the cost of goods sold will include newer, higher cost inventory which results in a higher cost of goods sold and lower profits.

When Costs Are Rising Over Time