Under LIFO, which costs are assigned to cost of goods sold?

Under LIFO, which costs are assigned to cost of goods sold?

• A. Oldest costs
• B. Newest costs
• C. Average costs
• D. Specific costs

Answer: (B)

In this method, the most recently purchased costs are the ones tied to cost of goods sold. That means the COGS reflects the price of the latest inventory acquired, while older costs stay in ending inventory. For example, if you buy 100 units at $5 and then 100 at $6 and you sell 120 units, the COGS would be 100 units at $6 plus 20 units at $5, totaling 700, with the remaining 80 units valued at the older $5 cost. The other approaches don’t fit this pattern: using the oldest costs corresponds to FIFO, where COGS would include the earliest prices; averaging costs blends all prices; and specific costs would track exact items sold, which is not the standard LIFO rule.

In this method, the most recently purchased costs are the ones tied to cost of goods sold. That means the COGS reflects the price of the latest inventory acquired, while older costs stay in ending inventory. For example, if you buy 100 units at $5 and then 100 at $6 and you sell 120 units, the COGS would be 100 units at $6 plus 20 units at $5, totaling 700, with the remaining 80 units valued at the older $5 cost. The other approaches don’t fit this pattern: using the oldest costs corresponds to FIFO, where COGS would include the earliest prices; averaging costs blends all prices; and specific costs would track exact items sold, which is not the standard LIFO rule.