Under LIFO in a period of rising prices, which statement is true?

Under LIFO in a period of rising prices, which statement is true?

• A. The ending inventory is the lowest
• B. The ending inventory is the highest
• C. COGS is lower
• D. Gross profit is higher

Answer: (A)

Under LIFO in a period of rising prices, the most recently acquired goods—which carry the higher costs—are the ones treated as sold first. That means cost of goods sold goes up, while the remaining inventory consists of older units with lower costs. As a result, the ending inventory value reflects those older, cheaper cost layers and is the lowest among the common costing methods. Since COGS is higher under this scenario, gross profit wouldn’t be higher—it would be lower. So the ending inventory ends up being the lowest.

Under LIFO in a period of rising prices, the most recently acquired goods—which carry the higher costs—are the ones treated as sold first. That means cost of goods sold goes up, while the remaining inventory consists of older units with lower costs. As a result, the ending inventory value reflects those older, cheaper cost layers and is the lowest among the common costing methods. Since COGS is higher under this scenario, gross profit wouldn’t be higher—it would be lower. So the ending inventory ends up being the lowest.