Question

Which inventory cost flow assumption generally results in the highest reported amount for cost of goods...

Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling?

Weighted-average cost.

LIFO.

Straight-line.

FIFO.

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Answer #1

Cost of goods sold will be higher when per unit cost of inventory sold is higher. Since inventory cost is falling, therefore inventory bought later will cost lower than inventory bought earlier.

In FIFO method cost of inventory bought first will be sold first and inventory bought first will have higher cost than inventory bought later.

Therefore the inventory cost will be higher in case of FIFO method which will result in higher cost of goods sold in case of inventory method.

Hence FIFO method will result in higher cost of goods sold.

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