Question

The cost method that will yield the highest taxable income during times of inflation is the a.weighted average inventory cost method. b.FIFO inventory cost method. c.specific identification inventory cost method. d.LIFO inventory cost method.

Answer 1

Answer:

The answer is B.

Explanation:

FIFO inventory cost method will yield the highest taxable income during times of inflation or period of rising price.

FIFO is First in First out i.e the inventory that was purchase first will go out first. This method reflects the current market price because last inventories bought during inflation are part of the ending inventories. Ending inventories are high, cost of sales are low and gross profit is high.

Because gross profit is high, high tax will be charged