Question

in times of rising prices, cost of goods sold determined using the lifo inventory assumption typically will be than cost of goods sold determined using the fifo inventory assumption.

Answer 1

When prices are rising, the Cost of Goods Sold according to LIFO will be higher than cost of goods sold under FIFO.

Last-In, First-Out (LIFO) refers to a company selling off the latest inventory that it receives first before the inventory it received earlier.

When prices are rising, LIFO will result in a higher COGS because:

• Purchases will be high
• Closing stock will be low on account of only the earlier cheaper inventory being left

In conclusion, LIFO results in cost of goods sold being higher because the closing stock which is deducted from COGS will be lower.

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