Which inventory valuation method assumes the first units purchased are the first units sold?

Which inventory valuation method assumes the first units purchased are the first units sold?

• A. Last in, first out (LIFO)
• B. First-in, first-out (FIFO)
• C. Average cost method (AVCO)
• D. Weighted average method

Answer: (B)

This question is about how different inventory valuation methods allocate the cost of goods sold. First-in, first-out means the oldest inventory costs are used to price the units sold, so the first units you purchased are the first ones you sell. That makes the cost of goods sold reflect older prices, while the remaining inventory carries the newer prices. This alignment—oldest costs being assigned to sold units—is exactly what the statement describes, so it’s the correct fit. The other methods handle cost flow differently: the last-in, first-out approach assigns the most recent costs to COGS; the average cost methods (including AVCO and the weighted average) blend costs across all units rather than tying COGS to a specific batch. In rising-price scenarios, FIFO usually yields a higher ending inventory value and lower COGS compared with LIFO, which helps explain why FIFO matches the described idea.

This question is about how different inventory valuation methods allocate the cost of goods sold. First-in, first-out means the oldest inventory costs are used to price the units sold, so the first units you purchased are the first ones you sell. That makes the cost of goods sold reflect older prices, while the remaining inventory carries the newer prices. This alignment—oldest costs being assigned to sold units—is exactly what the statement describes, so it’s the correct fit. The other methods handle cost flow differently: the last-in, first-out approach assigns the most recent costs to COGS; the average cost methods (including AVCO and the weighted average) blend costs across all units rather than tying COGS to a specific batch. In rising-price scenarios, FIFO usually yields a higher ending inventory value and lower COGS compared with LIFO, which helps explain why FIFO matches the described idea.