Which inventory valuation method results in the highest profit during periods of rising prices?

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Q: Which inventory valuation method results in the highest profit during periods of rising prices?

Solution: The FIFO (First In, First Out) method results in the highest profit during periods of rising prices.

Steps: 6

Step 1: Understand what inventory valuation methods are. These are ways to calculate the value of the inventory a business has.
Step 2: Learn about FIFO (First In, First Out). This method assumes that the oldest inventory items are sold first.
Step 3: Recognize that during rising prices, older inventory costs are lower than newer inventory costs.
Step 4: Realize that using FIFO means the business reports lower costs for the items sold, leading to higher profits.
Step 5: Compare FIFO with other methods like LIFO (Last In, First Out), which would report higher costs and lower profits during rising prices.
Step 6: Conclude that FIFO results in the highest profit during periods of rising prices.