Final answer:
FIFO decreases cost of goods sold when costs are increasing because it uses the cost of older, cheaper inventory first, leading to a lower COGS than using newer, more expensive inventory.
Step-by-step explanation:
FIFO, which stands for First-In, First-Out, is an inventory valuation method that assumes the items purchased or produced first are sold first. When considering whether FIFO tends to decrease the cost of goods sold (COGS), we need to look at the behavior of costs. If costs are increasing, FIFO will use the cost of the older, cheaper inventory first, leading to a lower COGS compared to using the cost of newer, more expensive inventory. However, if costs are decreasing, as is the case in a decreasing cost industry due to factors such as technological advancements or education improvements leading to economies of scale, FIFO would in turn lead to a higher COGS because it allocates the older, higher cost ahead of the newer, lower cost.
Thus, the correct answer is a) FIFO tends to decrease cost of goods sold when costs are increasing.