Which inventory method assumes the newest items are sold first?

Which inventory method assumes the newest items are sold first?

• A. FIFO
• B. LIFO
• C. Weighted average
• D. Specific identification

Answer: (B)

Understanding how inventory cost flow works helps explain which method fits “newest items are sold first.” The approach that uses the most recently acquired items to determine cost of goods sold is Last-In, First-Out (LIFO). With LIFO, the cost of the latest purchases is matched to the goods you sell, so the newest items are sold first and the ending inventory carries the older costs. This aligns exactly with the idea in the question. For example, if you buy 10 units at $5 and then 10 units at $7, and you sell 8 units, LIFO would assign $7 to each of those 8 units sold, for a COGS of 56, leaving ending inventory of 2 units at $7 and 10 units at $5 (total ending inventory value of 64). Other methods don’t match the “newest items first” idea: FIFO would sell the oldest costs first, weighted average averages costs across all units, and specific identification tracks exact items rather than applying a flow assumption.

Understanding how inventory cost flow works helps explain which method fits “newest items are sold first.” The approach that uses the most recently acquired items to determine cost of goods sold is Last-In, First-Out (LIFO). With LIFO, the cost of the latest purchases is matched to the goods you sell, so the newest items are sold first and the ending inventory carries the older costs. This aligns exactly with the idea in the question.

For example, if you buy 10 units at $5 and then 10 units at $7, and you sell 8 units, LIFO would assign $7 to each of those 8 units sold, for a COGS of 56, leaving ending inventory of 2 units at $7 and 10 units at $5 (total ending inventory value of 64). Other methods don’t match the “newest items first” idea: FIFO would sell the oldest costs first, weighted average averages costs across all units, and specific identification tracks exact items rather than applying a flow assumption.