Under FIFO, which prices are used to value ending inventory?

Under FIFO, which prices are used to value ending inventory?

• A. Oldest prices
• B. Average prices
• C. First-in prices
• D. Newest prices

Answer: (D)

Under FIFO, costs flow from the oldest purchases to the newest. This means the items left in ending inventory are those bought most recently, so their value is based on the latest prices paid. For example, if you bought units at $5 first and then at $6, and you’ve sold enough to use up the $5 batch, the remaining inventory would be priced at $6 per unit. The oldest prices would be used for the cost of goods sold under FIFO, not the ending inventory; the weighted-average method would use an average cost, not the specific latest prices; and the first-in prices describe the oldest costs, not the ending inventory in FIFO. The newest prices are the ones that correctly value ending inventory under FIFO.

Under FIFO, costs flow from the oldest purchases to the newest. This means the items left in ending inventory are those bought most recently, so their value is based on the latest prices paid. For example, if you bought units at $5 first and then at $6, and you’ve sold enough to use up the $5 batch, the remaining inventory would be priced at $6 per unit. The oldest prices would be used for the cost of goods sold under FIFO, not the ending inventory; the weighted-average method would use an average cost, not the specific latest prices; and the first-in prices describe the oldest costs, not the ending inventory in FIFO. The newest prices are the ones that correctly value ending inventory under FIFO.