What method of inventory cost accounting results in the lowest ending inventory value in a growing economy?

The method of inventory cost accounting that results in the lowest ending inventory value in a growing economy is Last In First Out (LIFO). This approach assumes that the most recently acquired inventory items are the first to be sold. In a growing economy, prices typically increase over time, meaning that the newest inventory costs more than older inventory. Under LIFO, when these higher-priced items are sold first, the remaining inventory consists of older, less expensive items. Consequently, the ending inventory is valued at these older prices, which reduces the total value of the inventory reported on the balance sheet.

This valuation method can also lead to tax advantages because it results in lower taxable income due to the higher cost of goods sold (COGS) recorded during times of inflation. The overall effect is lower reported earnings, which can influence cash flows and financial metrics.

In contrast, the other methods such as First In First Out (FIFO) and Weighted Average Cost would result in higher inventory valuations during periods of rising prices, as they either sell the older, cheaper items first or average out the costs respectively. Specific Identification tracks and assigns actual costs to each individual item, which can vary widely and would not necessarily result in the lowest ending inventory value unless the recent purchases were significantly more expensive