Under which method do ending inventories consist of the newest items?

Under which method do ending inventories consist of the newest items?

• A. Oldest items
• B. Newest items
• C. Middle items
• D. All items

Answer: (B)

The idea being tested is how cost flow assumptions affect which items stay in ending inventory. Under the first-in, first-out approach, the oldest costs are allocated to the cost of goods sold as items are sold, so the inventory remaining at the end consists of the most recently purchased items—the newest costs. This happens because costs are removed in the order they were incurred, leaving the latest cost layers in ending inventory. In contrast, last-in, first-out would leave the oldest costs in ending inventory. A weighted-average method blends costs from all purchases. When prices rise, FIFO tends to show a higher ending inventory value and a lower cost of goods sold than LIFO, affecting net income. So the method that makes ending inventories consist of the newest items is FIFO.

The idea being tested is how cost flow assumptions affect which items stay in ending inventory. Under the first-in, first-out approach, the oldest costs are allocated to the cost of goods sold as items are sold, so the inventory remaining at the end consists of the most recently purchased items—the newest costs. This happens because costs are removed in the order they were incurred, leaving the latest cost layers in ending inventory. In contrast, last-in, first-out would leave the oldest costs in ending inventory. A weighted-average method blends costs from all purchases. When prices rise, FIFO tends to show a higher ending inventory value and a lower cost of goods sold than LIFO, affecting net income. So the method that makes ending inventories consist of the newest items is FIFO.