Which cost flow assumption uses the most recent costs to calculate COGS?

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

Answer: (B)

Last In, First Out means you assign the cost of the most recently purchased items to Cost of Goods Sold when a sale occurs. This makes COGS reflect the current, higher prices in a period of rising costs, while the ending inventory carries older, lower costs. That contrast is why LIFO tends to produce higher COGS and lower ending inventory compared with other methods during inflation, which also reduces pretax income. By comparison, FIFO uses the oldest costs for COGS (leaving newer costs in ending inventory), the weighted-average method blends costs into a single average, and specific identification assigns the exact cost of each sold item.