Final answer:
The FIFO inventory cost flow method will produce the highest income and asset values in an inflationary environment.
Step-by-step explanation:
In an inflationary environment, the FIFO (First-In, First-Out) inventory cost flow method will produce the highest income and asset values.
FIFO assumes that items purchased first are sold first. In an inflationary environment where prices are rising, the cost of goods sold (COGS) will be lower because older inventory purchased at lower prices is being sold first, resulting in higher income and asset values.
For example, if a company initially purchased 100 units of a product at $10 each and later purchased another 100 units at $15 each, and they sell 100 units when prices have risen to $20 each, FIFO would assume that the cost of goods sold is $10 each for the first 100 units, resulting in higher income and asset values compared to other inventory cost flow methods like LIFO or weighted average.