Answer: FIFO

In a period of declining inventory unit costs and constant or increasing inventory quantities, the FIFO method allocates a higher amount of the total cost of goods available for sale to cost of sales on the income statement compared to LIFO or weighted average cost. This results in lower ending inventory on the balance sheet. Consequently, higher cost of sales under FIFO leads to lower gross profit, operating profit, and income taxes. In contrast, LIFO would result in higher ending inventory and lower cost of sales in such a scenario, while weighted average cost would fall between FIFO and LIFO in terms of allocation.

Author: LeetQuiz Editorial Team