Question

If inventory costs are rising, which inventory costing method—first-in, first-out; last-in, first-out; or average cost—yields the

(a) lowest ending inventory?

(b) lowest net income?

(c) largest ending inventory?

(d) largest net income?, assuming the same method is used for tax purposes

Please please please answer all questions

Answer 1

If inventory costs are rising

a) Lowest ending inventory - LIFO (last in , first out) since lowest cost inventory is purchased first as prices are rising.

b) Lowest net income - LIFO (last in , first out) because it gives you the highest cost of goods sold and the lowest net income.

c) Largest ending inventory - FIFO ( first in, first out) since highest cost inventory are purchased later as prices are rising.

d) Largest net income - FIFO because it gives you the lowest cost of goods sold and the highest taxable income.