Which inventory method reflects most recent prices in inventory values?

Which inventory method reflects most recent prices in inventory values?

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

Answer: (C)

Under FIFO, the first items purchased are the first ones sold. That means the inventory left at the end of the period consists of the most recently purchased items, so the ending inventory is valued using the latest costs. This is why FIFO reflects the most recent prices in inventory values. LIFO would leave older costs in ending inventory, Average Cost uses a blended price, and Specific Identification ties value to the exact items, which may or may not be the most recent costs but isn’t the general mechanism described by this question.

Under FIFO, the first items purchased are the first ones sold. That means the inventory left at the end of the period consists of the most recently purchased items, so the ending inventory is valued using the latest costs. This is why FIFO reflects the most recent prices in inventory values. LIFO would leave older costs in ending inventory, Average Cost uses a blended price, and Specific Identification ties value to the exact items, which may or may not be the most recent costs but isn’t the general mechanism described by this question.