Which inventory costing method assumes that the items sold are those that were acquired first?

• A. LIFO (Last-In, First-Out)
• B. FIFO (First-In, First-Out)
• C. Specific Identification
• D. Weighted Average Cost

Answer: (B)

Verified step by step guidance

1. Understand the concept of inventory costing methods: Inventory costing methods are used to determine the cost of goods sold (COGS) and the value of ending inventory. Each method assumes a specific flow of inventory items.
2. Review the FIFO (First-In, First-Out) method: FIFO assumes that the oldest inventory items (those acquired first) are sold first. This method aligns with the physical flow of goods in many businesses, such as grocery stores where older items are sold before newer ones.
3. Compare FIFO with other methods: LIFO (Last-In, First-Out) assumes the newest inventory items are sold first, Specific Identification tracks the exact cost of individual items, and Weighted Average Cost calculates an average cost for all inventory items.
4. Identify the key assumption of FIFO: The FIFO method specifically assumes that the items sold are those that were acquired first, making it the correct answer to the question.
5. Apply this understanding to the problem: Based on the explanation, recognize that FIFO is the inventory costing method that matches the assumption described in the question.