Question

Tanner Corporation's inventory on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

Answer 1

The cost of inventory purchases decreased during the year.

Step-by-step explanation:

Since the value of the inventory would have been lower using FIFO than LIFO, it means that cost of goods sold actually deceased during the year.

E.g. initially goods costed $10 per unit, and then it fell to $9 per unit. If the company uses FIFO, it will value its inventory at $9 per unit, and its COGS at $10 per unit.