Question

3.If costs are falling, which of the following inventory costing methods will lead to the highest Cost of Goods Sold on the Income Statement?

A. LIFO

B. Weighted Average

C. FIFO

Answer 1

Answer is FIFO

Under FIFO inventory method, the seller sells goods which are purchased first.
Under LIFO inventory method, the seller sells goods which are purchased last.
Under Weighted Average inventory method, the seller averages the cost per unit.

If costs are falling, then the purchasing price of goods purchased later will be lesser than the goods purchased earlier. As in FIFO method it is presumed that goods purchased first are sold first, cost of goods sold under FIFO method will be highest.