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When inventory costs are declining, which of the following inventory costing methods will result in the highest cost of goods
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Answer #1

The answer is option D - first in first out method

EXPLANATION:-

When the inventory costs are declining the effect of various methods on the cost of goods sold:-

LIFO

Under this method the most recent items of the inventory are to be sold first. When the prices are falling the recent items of inventory will have the least cost compared to the former ones this means cost of goods sold will be lower if LIFO method is followed.

FIFO

Under this method the oldest items of the inventory are to be sold first. When the prices are falling the oldest items of inventory will have the highest cost compared to the recent ones this means cost of goods sold will be highest if FIFO method is followed.

Wheighted Average Cost Method

This method has a neutral effect compared to the previous two methods.

Specific identification method

This method specifically identifies the particular product to be sold and its cost. Therefore not affected by the fluctuations.

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