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Question:
During periods of rising prices, the last units purchased are more expensive than the existing units. Under LIFO, the cost of the last units purchased is assigned to cost of goods sold. This higher cost of goods sold results in lower income, as compared to the FIFO method. As the name suggests, the weighted average method is based on mathematical averages rather than timing of purchase/use. Thus, cost of goods sold using this method falls between that of LIFO and FIFO.
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