Declining Inventory Prices

When inventory prices are declining the, FIFO method will generally yield a gross profit that is:
A Less than the LIFO method
B Equal to the average cost method
C The same as that from any other costing method
D Higher than the LIFO method.

Questions by s187536

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  • Jan 1st, 2010

It would be less then Lifo Method Definitely, as inventory prices are declining. if inventory prices are increasing then it would be higher then LIFO method.

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Gross Profit is always higher for FIFO than  LIFO. Cost of Goods sold is going to be always higher for LIFO and lower for FIFO.  LIFO tends to go for more of  a tax break approach. Companies usually like to use FIFO or Average, sometimes both. Both the Gross Profits for FIFO and Average are much higher than LIFO's. The answer is D here.

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