Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic cost of goods sold. Which inventory costing method should Ace consider using?

a. Average because all inventory costs will then represent an average amount

b. Specific identification is the most realistic method because it involves the actual costs

c. LIFO because cost of goods sold represents the latest costs

d. FIFO because cost of goods sold represents the earliest costs

Question

Porter Hunter

Business

20 March, 10:30

Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic cost of goods sold. Which inventory costing method should Ace consider using?

a. Average because all inventory costs will then represent an average amount

b. Specific identification is the most realistic method because it involves the actual costs

c. LIFO because cost of goods sold represents the latest costs

d. FIFO because cost of goods sold represents the earliest costs

+1

Answers (1)

Know the Answer?

Lillian Coleman · Answer 1

The correct answer is letter "C": LIFO because cost of goods sold represents the latest costs.

Explanation:

Last in, First out or LIFO is a cost inventory method that assumes that assets produced last or sold are used or first while those produced earlier are sold used last. LIFO should not be used while measuring the ending inventory because the leftover inventory could be too old, thus, because of depreciation, its value will be lower than the current value for the inventory.