Question

When inventory costs are rising, these low cost items in beginning inventory produce:

Answer 1

When inventory costs are rising, the low-cost items in beginning inventory produce a higher profit margin for the business.

Step-by-step explanation:

When inventory costs are rising, the low-cost items in beginning inventory produce a higher profit margin for the business. This occurs because the selling price for the items remains the same, but the cost of production is lower due to the lower cost of initial inventory. When inventory costs are rising, the low-cost items in beginning inventory produce a higher profit margin for the business.

For example, let's say a retail store buys a shirt for $5 and sells it for $10. If the cost of a shirt at the beginning of the inventory was $3, the profit margin would be $7 ($10 selling price - $3 cost of production). However, if the cost of a shirt increases to $4, the profit margin would be reduced to $6 ($10 selling price - $4 cost of production).