In the event of rising inventory prices, the method of inventory valuation that gives the highest profit and the highest ending inventory is the:
A) FIFO method.
B) LIFO method.
C) Weighted average.
D) Perpetual method.

Question

Quizplus · Accepted Answer

In the event of rising inventory prices, the FIFO (First-In-First-Out) method gives the highest profit and the highest ending inventory. This is because the FIFO method assumes that the first items purchased are the first items sold. Therefore, in a rising price environment, the items purchased earlier (when prices were lower) will be sold first, resulting in a lower cost of goods sold and a higher ending inventory value. This, in turn, leads to a higher profit.

In the Event of Rising Inventory Prices, the Method of Inventory