LIFO is an inventory method in which

LIFO is an inventory method in which

• A. The oldest items are assumed to be sold first
• B. The most recently acquired items are assumed to be the first sold
• C. The inventory method ignores price changes
• D. It always results in higher ending inventory

Answer: (B)

LIFO means the most recently purchased items are the first to be sold. This is why the cost of goods sold reflects the latest prices, while the ending inventory is made up of the oldest costs. For example, if you buy 100 units at $5 and then 100 units at $6, and you sell 120 units, the cost of those sold items would be 100 units at $6 plus 20 units at $5. The ending inventory would be 80 units at $5. So, LIFO assigns the newest costs to sales and leaves older costs in inventory. The other statements don’t fit because they describe different ideas: the oldest items sold first describes FIFO, not LIFO; price changes do matter in LIFO because the recent costs are used for COGS; and LIFO does not always yield higher ending inventory—after price increases, ending inventory is typically lower since it contains older, cheaper costs.

LIFO means the most recently purchased items are the first to be sold. This is why the cost of goods sold reflects the latest prices, while the ending inventory is made up of the oldest costs.

For example, if you buy 100 units at $5 and then 100 units at $6, and you sell 120 units, the cost of those sold items would be 100 units at $6 plus 20 units at $5. The ending inventory would be 80 units at $5. So, LIFO assigns the newest costs to sales and leaves older costs in inventory.

The other statements don’t fit because they describe different ideas: the oldest items sold first describes FIFO, not LIFO; price changes do matter in LIFO because the recent costs are used for COGS; and LIFO does not always yield higher ending inventory—after price increases, ending inventory is typically lower since it contains older, cheaper costs.