Which inventory cost flow method uses the oldest costs for calculating cost of goods sold?

Which inventory cost flow method uses the oldest costs for calculating cost of goods sold?

• A. FIFO
• B. LIFO
• C. Weighted Average
• D. Specific Identification

Answer: (A)

This question tests how inventory cost flow methods decide which costs go into cost of goods sold. Under the first-in, first-out approach, the oldest costs are used to calculate the cost of goods sold. As you sell, you assign the cost of the earliest purchases to COGS, leaving the newer costs in ending inventory. For example, if you buy 100 units at $5 and then 100 at $6, and you sell 80 units, the COGS is 80 × $5 = $400, while the ending inventory consists of 20 units at $5 and 100 units at $6, totaling $700. This illustrates that the oldest costs are the ones expensed first under this method. Other methods assign costs differently: LIFO uses the newest costs for COGS, weighted average uses a blended average cost, and specific identification tracks the exact cost of each unit sold.

This question tests how inventory cost flow methods decide which costs go into cost of goods sold. Under the first-in, first-out approach, the oldest costs are used to calculate the cost of goods sold. As you sell, you assign the cost of the earliest purchases to COGS, leaving the newer costs in ending inventory. For example, if you buy 100 units at $5 and then 100 at $6, and you sell 80 units, the COGS is 80 × $5 = $400, while the ending inventory consists of 20 units at $5 and 100 units at $6, totaling $700. This illustrates that the oldest costs are the ones expensed first under this method. Other methods assign costs differently: LIFO uses the newest costs for COGS, weighted average uses a blended average cost, and specific identification tracks the exact cost of each unit sold.