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In an environment of rapid deflation, LIFO inventory method would report the highest net income.
What is LIFO Method?
"Last-In, First-Out" is an abbreviation for LIFO. It is a technique used in the computation of cost of goods sold to support cost flow assumptions. The LIFO approach is based on the assumption that the most recent items added to a company's inventory have already been sold. These current products' purchase prices are the ones that were used in the calculation. When the expenses of making a product or acquiring inventory have been rising, the COGS (Cost of Goods Sold) computation uses the LIFO approach. Inflation may be to reason.
Because it may provide a tax advantage to corporations whose costs of purchasing or producing goods are rising, the LIFO method is attractive to American companies.
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