Accounting for IGCSE & O level - Final Statements (Section 2 - No. 33)
In times of rising purchase prices, which method of valuation results in higher profits – and why?
FIFO, because the older, lower-cost inventory is sold first.
LIFO, because the newer, higher-cost inventory is sold first.
AVCO, as it smooths out the cost.
All methods produce the same results in rising price scenarios.
Forklaring
FIFO leads to higher profits because the lower-cost inventory is matched against revenue, and cost of goods sold is less.