ECONOMICS

Detailed explanation-1: -Last-in, first-out, or LIFO, uses the most recent costs first. When prices are rising, we prefer LIFO because it gives you the highest cost of goods sold and the lowest taxable income. First-in, first-out, or FIFO, applies the earliest costs first.

Detailed explanation-2: -During times of rising prices, companies may find it beneficial to use LIFO cost accounting over FIFO. Under LIFO, firms can save on taxes as well as better match their revenue to their latest costs when prices are rising.

Detailed explanation-3: -In a period of rising prices, first-in-first-out (FIFO) is expected to have the highest net income. This is because FIFO assumes the oldest inventory purchases are sold first. This causes the lowest-priced inventory to be recorded to the expense which would increase the net income.

Detailed explanation-4: -In this situation, if FIFO assigns the oldest costs to the cost of goods sold, these oldest costs will theoretically be priced lower than the most recent inventory purchased at current inflated prices. This lower expense results in higher net income.

Detailed explanation-5: -“Because FIFO results in a higher net income during periods of rising prices, it also results in higher income tax expenses, ” Ng said. “Conversely, if the LIFO method is used during a period of rising prices, it will result in lower net income. So, this method would result in a lower income tax expense.”