- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 6. Analysis of Inventories
- Subject 2. The Effects of Inflation and Deflation on Inventories, COGS and Gross Margin
CFA Practice Question
Which inventory cost flow assumption normally will yield the highest cost of goods sold during a period of declining prices?
B. FIFO
C. LIFO
A. Weighted average
B. FIFO
C. LIFO
Correct Answer: B
The older, higher inventory purchases will be the costs that go into cost of goods sold under FIFO.
User Contributed Comments 6
| User | Comment |
|---|---|
| Stace | Definitely B |
| treakj | But only if the first purchase cost is lower than the recently purchased cost, isnt it? Otherwise the LIFO would still show a higher COGS. |
| surob | treakj: if not given, assume the price is rising. |
| ddrmax | declining pricing.... |
| ericczhang | "...during a period of declining prices" |
| johntan1979 | FEE-FI-FO-FUM! |