select all that apply\nassuming purchase costs are rising, determine which of the statements below are…

select all that apply\nassuming purchase costs are rising, determine which of the statements below are correct regarding the cost of goods sold under fifo, lifo and weighted average cost flow methods. (check all that apply)\n\ncompanies using fifo will report the highest gross profit and net income.\ncompanies using fifo will report the smallest cost of goods sold.\nweighted average cost of goods sold will be between fifo and lifo costs of goods sold.\ncompanies using lifo will report the smallest cost of goods sold.\ncompanies using fifo will pay higher taxes than companies using lifo, assuming all else being equal\n\nneed help? review these concept resources.

select all that apply\nassuming purchase costs are rising, determine which of the statements below are correct regarding the cost of goods sold under fifo, lifo and weighted average cost flow methods. (check all that apply)\n\ncompanies using fifo will report the highest gross profit and net income.\ncompanies using fifo will report the smallest cost of goods sold.\nweighted average cost of goods sold will be between fifo and lifo costs of goods sold.\ncompanies using lifo will report the smallest cost of goods sold.\ncompanies using fifo will pay higher taxes than companies using lifo, assuming all else being equal\n\nneed help? review these concept resources.

Answer

Brief Explanations:

  • FIFO (First - In, First - Out): When purchase costs are rising, under FIFO, the older (lower - cost) inventory is sold first. So, cost of goods sold (COGS) is lower. Since gross profit = sales - COGS and net income is related to gross profit (after considering other expenses), a lower COGS leads to higher gross profit and net income. Also, higher net income means higher taxes (assuming all else equal).
  • LIFO (Last - In, First - Out): When purchase costs are rising, under LIFO, the newer (higher - cost) inventory is sold first. So, COGS is higher (not lower as the wrong option claims).
  • Weighted - average cost: The weighted - average cost per unit is calculated as total cost of goods available for sale divided by total number of units available for sale. When costs are rising, the weighted - average cost per unit will be between the FIFO cost per unit (lower, as older/lower - cost units are used first in COGS calculation) and the LIFO cost per unit (higher, as newer/higher - cost units are used first in COGS calculation). So, weighted - average COGS will be between FIFO and LIFO COGS.

Answer:

  • Companies using FIFO will report the highest gross profit and net income.
  • Companies using FIFO will report the smallest cost of goods sold.
  • Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.
  • Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else being equal.