When comparing the results of LIFO and FIFO when inventory costs are decreasing: A. ending inventory will be higher using LIFO. B. cost of goods sold will be higher using LIFO. C. ending inventory will be higher using FIFO. D. cost of goods sold will be lower using FIFO.

Question

Daisy Kirby

Business

6 August, 23:14

When comparing the results of LIFO and FIFO when inventory costs are decreasing: A. ending inventory will be higher using LIFO. B. cost of goods sold will be higher using LIFO. C. ending inventory will be higher using FIFO. D. cost of goods sold will be lower using FIFO.

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Answers (2)

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Suzan · Answer 1

B.

Explanation:

LIFO takes the latest cost of goods into account and leads to rising cost of goods produced or purchased. This in turn leads to lower gross profit. Conversely, FIFO takes into account oldest cost of goods purchased or produced and lower cost of goods sold, thus higher gross profit.

Arely Burnett · Answer 2

B. cost of goods sold will be higher using LIFO

Explanation:

If the inventory costs are going up, or are likely to increase, costing of LIFO may be better, because the cost items higher (the ones purchased or made last) are considered to be sold. This will results in lower profits and high costs.

Let us assume the opposite its true, and your inventory costs are sliding down, FIFO costing may be better. Since prices usually goes up, most businesses will prefer to use LIFO costing.