Question

    In a period of rising prices and stable inventory

    quantities, which of the following best describes the effect on gross profit of using LIFO as compared to FIFO?
    A Lower Correct Answer Incorrect Answer
    B Higher Correct Answer Incorrect Answer
    C No Correct Answer Incorrect Answer
    D Cannot be determined based on above information Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Compared to FIFO, Cost of goods sold under LIFO will be higher because the most recent higher costs units are assumed to be the first units sold. Higher COGS under LIFO will result in lower gross profit (revenue – cost of goods sold)

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