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In a period of rising prices, compared with the weighted average method, the FIFO method will generally show:

When prices rise, FIFO charges the older, cheaper costs to cost of goods sold and leaves the recent, dearer costs in closing stock. Compared with weighted average, it therefore shows higher closing stock and higher profit.

  1. ALower closing stock and lower profit
  2. BHigher closing stock and higher profitCorrect
  3. CHigher closing stock and lower profit
  4. DLower closing stock and higher profit

Explanation

FIFO issues the oldest, cheaper costs to cost of goods sold, so cost of sales is lower and profit higher. The latest, dearer purchases remain in closing stock, so it is higher than under weighted average. The options showing lower profit with higher stock are inconsistent.

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