Supply Chain Management Professional (SCMP) · Question
Which inventory valuation method typically results in a lower cost of goods sold (COGS) during periods of rising prices?
FIFO assumes the oldest inventory is sold first, so in rising prices, the lower-cost older inventory is expensed, resulting in lower COGS.
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Question: Which inventory valuation method typically results in a lower cost of goods sold (COGS) during periods of rising prices?
Answer options: ✅ FIFO (First-In, First-Out)
- LIFO (Last-In, First-Out)
- Weighted-Average Cost
- Specific Identification
Correct answer: FIFO (First-In, First-Out)
Explanation: FIFO assumes the oldest inventory is sold first, so in rising prices, the lower-cost older inventory is expensed, resulting in lower COGS.
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