What inventory method would result in lower net income during a period of rising prices?

What inventory method would result in lower net income during a period of rising prices?

• A. FIFO
• B. LIFO
• C. Specific Identification
• D. Weighted Average

Answer: (B)

In a period of rising prices, the Last-In, First-Out method uses the most recent, higher-cost items for cost of goods sold first. That increases COGS, which reduces gross profit and, after all expenses, lowers net income for the period. Ending inventory also ends up valued lower because the remaining items are older and cheaper. The other methods either use older costs for COGS (FIFO), blend costs (Weighted Average), or depend on the specific items sold (Specific Identification), and tend to produce higher net income under rising prices. So the approach that yields the lower net income is LIFO.

In a period of rising prices, the Last-In, First-Out method uses the most recent, higher-cost items for cost of goods sold first. That increases COGS, which reduces gross profit and, after all expenses, lowers net income for the period. Ending inventory also ends up valued lower because the remaining items are older and cheaper. The other methods either use older costs for COGS (FIFO), blend costs (Weighted Average), or depend on the specific items sold (Specific Identification), and tend to produce higher net income under rising prices. So the approach that yields the lower net income is LIFO.