When purchase costs regularly rise, the inventory costing method that yields the highest reported net income is:
A. Specific identification method.
B. Average cost method.
C. Weighted-average method.
D. FIFO method.
E. LIFO method.
Answer (2)
In periods of rising purchase costs, the FIFO method reports the highest net income as it matches older, lower costs against current revenues, minimizing cost of goods sold. This contrasts with the LIFO method, which incurs higher costs from newer, more expensive inventory. Overall, FIFO is preferred in inflationary times for better financial reporting. ;
In rising purchase cost environments, the FIFO method results in the highest reported net income due to older, cheaper inventory costs being matched against current revenues. This contrasts with LIFO, which reports lower net incomes in such situations. Therefore, the correct choice is D: FIFO method.
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