Which statement about FIFO is correct?

• A. Allocates costs based on the purchase date order
• B. Averages cost across all items
• C. Expensing the newest items first
• D. Expensing the oldest items first

Answer: (D)

Under FIFO, the costs tied to inventory are assumed to move in age order: the oldest inventory is sold first, so the cost of goods sold uses the earliest purchase prices and the ending inventory carries the newer, higher costs if prices have risen. This is why the statement that oldest items are expensed first is the best description of FIFO. It’s not about averaging costs (that would be a weighted-average method), and it’s not expensing the newest items first (that would be LIFO). The phrase about allocating costs by purchase date is less precise than the explicit rule that the oldest costs flow to cost of goods sold first.