Under FIFO, which costs are used to determine the ending inventory?

• A. Oldest costs for ending
• B. Middle costs for ending
• C. Weighted-average costs for ending
• D. Newest costs for ending

Answer: (D)

Under FIFO, the costs used to value ending inventory come from the most recent purchases. This happens because the method assumes the oldest units are sold first, leaving the newest purchases in ending inventory. For example, if you buy 10 units at $5, then 20 at $6, then 15 at $7, and you sell 18 units, you’ve sold the $5 lot entirely and 8 of the $6 lot, leaving 12 units from the $6 layer and 15 units from the $7 layer. The ending inventory is thus valued at the newer costs ($6 and $7 per unit). In contrast, the oldest costs would flow to cost of goods sold, and weighted-average would blend costs from all layers, which is why FIFO ends up with the newest costs in ending inventory.