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Under inflationary conditions, which of the methods will not show greatest value of COGS?
- a)FIFO
- b)LIFO
- c)HIFO
- d)None
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Under inflationary conditions, which of the methods will not show grea...
FIFO (First-in, first-out) method is based on the perception that the first inventories purchased are the first ones to be sold. It is a cost flow assumption for most companies. Since the theory perfectly matches to the actual flow of goods, therefore it is considered as the right way to value inventory. Also, it is more logical approach, as oldest goods get sold first, thereby reducing the risk of getting obsolete.
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Under inflationary conditions, which of the methods will not show grea...
Explanation:
FIFO (First-In-First-Out):
- Under inflationary conditions, FIFO will show the greatest value of COGS.
- This is because FIFO assumes that the oldest inventory is sold first, resulting in lower COGS as older, cheaper inventory is used up first.
LIFO (Last-In-First-Out):
- LIFO would not show the greatest value of COGS under inflationary conditions.
- LIFO assumes that the newest inventory is sold first, leading to higher COGS as the more expensive inventory is used up first.
HIFO (Highest-In-First-Out):
- HIFO is a less common inventory valuation method.
- It assumes that the highest cost inventory items are sold first, which may or may not result in the greatest value of COGS depending on the specific circumstances.
None:
- This option means that none of the methods will show the greatest value of COGS.
- In this case, FIFO is the correct answer as it would indeed show the greatest value of COGS under inflationary conditions.
FIFO (First-In-First-Out):
- Under inflationary conditions, FIFO will show the greatest value of COGS.
- This is because FIFO assumes that the oldest inventory is sold first, resulting in lower COGS as older, cheaper inventory is used up first.
LIFO (Last-In-First-Out):
- LIFO would not show the greatest value of COGS under inflationary conditions.
- LIFO assumes that the newest inventory is sold first, leading to higher COGS as the more expensive inventory is used up first.
HIFO (Highest-In-First-Out):
- HIFO is a less common inventory valuation method.
- It assumes that the highest cost inventory items are sold first, which may or may not result in the greatest value of COGS depending on the specific circumstances.
None:
- This option means that none of the methods will show the greatest value of COGS.
- In this case, FIFO is the correct answer as it would indeed show the greatest value of COGS under inflationary conditions.
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Under inflationary conditions, which of the methods will not show greatest value of COGS?a) FIFO b) LIFO c) HIFO d) None Correct answer is option 'A'. Can you explain this answer?
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