Which cost flow method results in 1 the highest inventory am

Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement for Wright company?

Solution

1. FIFO cost flow method gives the highest inventory amount for the balance sheet--because purchase costs were increasing over time--FIFO sells the older, cheaper units first and keeps the newer, more expensive units in the ending inventory.

2. LIFO cost flow methods give the highest cost of goods sold for the income statement for Wright company--because the purchase costs were increasing over time--LIFO sells the newer, more expensive units first (keeping the older, cheaper units in the ending inventory.