If inventory costs are rising, which method (FIFO, LIFO, or weighted average cost) results in the highest net income? Which results in the highest inventory balance? Does your answer change depending on whether you are using the period or perpetual method? Explain.
Country/State/Province of question: USA
Dear Friend,FIFO -- This should be used if the prices are increasing. FIFO gives us a better indication of the value of ending inventory (on the balance sheet), but it also increases net income because inventory that might be several years old is used to value the cost of goods sold.FIFO Again -- This would result in the highest inventory balance / valuation. This is because the cheapest valued inventory would move out first. The left would be at purchased at the higher prices as the prices are rising. So they would result into highest inventory balance valuation if the prices are rising.NO.. the answer would not change even with perpetual or periodic method.I am sure this would help...Warm Regards,
Graduated in law with Emphasis on Finance and have have been working in financial sector for over 8