The inventory costing method that reports the most current prices in ending inventory is:

The inventory costing method that reports the most current prices in ending inventory is:

a. FIFO

b. Specific identification

c. LIFO

d. Average cost

Answer: c. LIFO

The LIFO (Last-In, First-Out) inventory costing method means that the inventory moves in a manner consistent with the order of acquisition or production – the most recent item to be bought or manufactured is taken first. Therefore, the amount of ending inventory carried in the balance sheet is the oldest and least relevant costs in the business. Thus, LIFO shows that the cost of goods sold or COGS carries the most current price, whereas the COGS in the ending inventory holds the older prices.

FIFO (First-In, First-Out), on the other hand, is the opposite of LIFO which holds the belief that the first costs are the one that are attached to the units sold while the most recent costs go to the inventory left. The specific identification method leads to the specific cost of each item sold to be associated with its cost while the average cost method allocates the average cost of the goods that were available for sale during the period and hence, the ending inventory has a blend of the current and past costs.