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NEW QUESTION: 1
The cost of materials has risen steadily over the year. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit assuming all other variables remain constant?
A. Last-in, first-out LIFO
B. First-in, first-out FIFO C Weighted average D Specific identification
Answer: B
Explanation:
Profit will be higher when cost of goods sold is lower. other factors held constant. Cost of goods sold equals beginning inventory. plus purchases. minus ending inventory. Accordingly, cost of goods sold will be lowest when the ending inventory is highest.
Ending inventory is highest under FIFO because the older, less expensive items are deemed to have been sold, leaving the more expensive items in the ending !inventory.


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