Question

In a period of rising prices, the inventory method which tends to give the highest reported net income is

1. first-in, first-out.
2. weighted-average.
3. last-in, first-out.
4. base stock.

Answer 1

1. first-in, first-out.

Step-by-step explanation:

There are basically three methods to compute the inventory which is shown below:

1. First-in-first out: In this method, the company sell the old products than the new that means first sold the old products and then the new products are sold

2. Weighted average method: In this, the weightage cost is computed based on total sales and total purchase during the year

3. Last-in-first-out: It is opposite to the first-in-first-out method, the new goods are sold first, then the old goods are sold

4. Base stock: It is that method by which the customer's orders are fulfilled by maintaining the less amount of inventory

In the FIFO method, it results in the highest ending inventory with the lower amount of costs of goods sold at the highest net income