Respuesta :
In a period of rising prices, the inventory method which tends to give the highest reported net income is FIFO (First In First Out ).
The FIFO method is used for the purpose of assuming cost flow. In manufacturing, the costs associated with this product must be incurred when the item moves to a later stage of development and the finished inventory item are sold.
The FIFO assumes that the cost of the first purchased inventory is recognized first. This process removes inventory from company ownership, reducing the dollar value of total inventory. Inventory-related costs can be calculated in a variety of ways. One of them is the FIFO method.
Typical economic conditions include inflationary markets and rising prices. In this situation, if the FIFO allocates the oldest cost to the cost of goods sold, in theory, the price of that oldest cost will be lower than the latest inventory purchased at the current soaring price.
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