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.

FIFO leads to higher profits because the lower-cost inventory is matched against revenue, and cost of goods sold is less.