Which inventory valuation method would likely result in lower ending inventory value during inflation?
Practice Questions
1 question
Q1
Which inventory valuation method would likely result in lower ending inventory value during inflation?
FIFO
LIFO
Weighted Average
Standard Costing
LIFO (Last-In, First-Out) results in higher cost of goods sold and lower ending inventory value during inflation.
Questions & Step-by-step Solutions
1 item
Q
Q: Which inventory valuation method would likely result in lower ending inventory value during inflation?
Solution: LIFO (Last-In, First-Out) results in higher cost of goods sold and lower ending inventory value during inflation.
Steps: 6
Step 1: Understand what inventory valuation methods are. These are ways to calculate the value of the inventory a company has.
Step 2: Learn about LIFO (Last-In, First-Out). This method assumes that the most recently purchased items are sold first.
Step 3: Recognize what happens during inflation. Prices of goods increase over time.
Step 4: Realize that under LIFO, when prices are rising, the cost of the most recently purchased (and more expensive) inventory is used to calculate the cost of goods sold.
Step 5: Understand that because LIFO uses higher costs for sold goods, it results in lower profits and lower ending inventory value.
Step 6: Conclude that during inflation, LIFO will likely result in a lower ending inventory value compared to other methods like FIFO (First-In, First-Out).
