Due to inflation, the cost to make rings increased before production ended. When production started, it cost $100 to make gold rings. However, during price deflation, the opposite may occur.įor example, a jeweler makes 10 gold rings in a month. This process may result in a lower cost of goods sold compared to the LIFO method. As prices increase, the business’s net income may increase as well. Depending on how those prices impact a business, the business may choose an inventory costing method that best fits its needs.ĭuring inflation, the FIFO method assumes a business’s least expensive products sell first. Deflation causes prices to decrease over time. Inflation causes prices to increase over time. The price of items often fluctuates over time, due to market value or availability.
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