Question

If the unit cost of inventory has continuously increased, the _______________ first out inventory valuaton method will result in a higher ending inventory than if the ________ first out method had been used.

Answer 1

Using the FIFO inventory valuation method will result in a higher ending inventory than using the LIFO method when the unit cost of inventory has continuously increased.

Step-by-step explanation:

The first inventory valuation method mentioned in the question is the FIFO (First-In, First-Out) method, and the second one is the LIFO (Last-In, First-Out) method.

If the unit cost of inventory has continuously increased, using the FIFO method will result in a higher ending inventory compared to using the LIFO method. This is because the FIFO method assumes that the earliest items purchased are the first ones sold, so the cost of those items becomes the cost of goods sold, leaving the higher-cost items in the ending inventory.

For example, if a company purchased inventory at $10 per unit initially and later purchased additional units at a higher cost of $15 per unit, FIFO would assume that the $10 units were sold first, resulting in a lower cost of goods sold and a higher ending inventory compared to LIFO.