In a period of rising prices, the inventory method that gives the highest possible value for ending inventory is:
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A. B. C. D.B
The ending inventory under FIFO is priced at the most recent, and thus the highest prices (in a period of rising prices) than any of the other methods.
In a period of rising prices, the inventory method that gives the highest possible value for ending inventory is the LIFO (Last-In, First-Out) method. Option C, LIFO, is the correct answer.
LIFO is an inventory valuation method where the most recently acquired or produced items are considered to be sold first. Under the LIFO method, the cost of goods sold (COGS) is based on the cost of the most recent purchases, while the ending inventory is based on the cost of the earliest purchases.
During a period of rising prices, the cost of acquiring inventory tends to increase over time. By using the LIFO method, the COGS reflects the higher costs of the most recent purchases, resulting in a lower reported income. On the other hand, the ending inventory consists of the lower-cost items acquired earlier, which are valued at a lower cost than the current replacement cost. As a result, the ending inventory value under LIFO tends to be lower compared to other inventory methods.
The question asks for the inventory method that gives the highest possible value for ending inventory. Since the ending inventory value is lower under LIFO, it means that the other inventory methods will provide higher ending inventory values. Therefore, options A (weighted average) and B (FIFO) can be eliminated.
Option D (gross profit) is not an inventory method but a financial measure that represents the difference between net sales and COGS. It is not directly related to the valuation of ending inventory and can be ruled out as well.
In summary, during a period of rising prices, the LIFO inventory method gives the highest possible value for ending inventory among the options provided.