What is the primary advantage of using FIFO during periods of inflation?

What is the primary advantage of using FIFO during periods of inflation?

Step 1: Understand what FIFO means. FIFO stands for 'First In, First Out', which is an inventory management method.
Step 2: Know that during inflation, prices of goods increase over time.
Step 3: Realize that under FIFO, the oldest (cheapest) inventory costs are used first when calculating the cost of goods sold (COGS).
Step 4: Recognize that using older, cheaper costs for COGS means that the expenses reported are lower.
Step 5: Understand that lower COGS leads to higher net income because net income is calculated as revenue minus expenses.
Step 6: Conclude that the primary advantage of using FIFO during inflation is that it results in higher net income due to lower COGS.

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