FIFO inventory costing most closely approximates the current cost for Ending Inventory because the newest items remain in stock. LIFO more closely reflects the current cost for Cost of Goods Sold because the latest items purchased are considered to be sold first.
The student has asked which inventory costing method most closely approximates the current cost for Ending Inventory and Cost of Goods Sold. Between FIFO (First-In, First-Out) and LIFO (Last-In, First-Out), these are the outcomes for each scenario:
- FIFO Ending Inventory: Approximates current cost because the last items purchased (which reflect the most recent prices) remain in inventory.
- FIFO Cost of Goods Sold: May not reflect the current cost as it is based on older inventory costs.
- LIFO Ending Inventory: May not reflect the current cost as it is based on older inventory costs.
- LIFO Cost of Goods Sold: Closely approximates current cost because it reflects the most recent prices of items sold first.
So, FIFO provides a better approximation of current cost for Ending Inventory, while LIFO does the same for the Cost of Goods Sold.