The correct answer is: A. First in first out (FIFO)
FIFO is an inventory valuation method in which the cost of goods sold is based on the assumption that the oldest inventory items are sold first. This means that the cost of goods sold is based on the cost of the inventory items that have been in the company’s possession for the longest period of time.
The FIFO method is the most common inventory valuation method used by businesses. It is a simple and straightforward method that is easy to understand and apply. It is also a conservative method, which means that it results in a lower cost of goods sold and a higher net income.
However, the FIFO method can be inaccurate if the company’s inventory turnover is high. This is because the cost of goods sold will be based on the cost of inventory items that are no longer in the company’s possession.
The other two options, LIFO and LILO, are not used as commonly as FIFO. LIFO is an inventory valuation method in which the cost of goods sold is based on the assumption that the newest inventory items are sold first. This means that the cost of goods sold is based on the cost of the inventory items that have been in the company’s possession for the shortest period of time.
LILO is an inventory valuation method in which the cost of goods sold is based on the assumption that the inventory items that were purchased at the highest cost are sold first. This means that the cost of goods sold is based on the cost of the inventory items that have the highest carrying value.
LIFO and LILO are not as commonly used as FIFO because they are not as conservative. These methods result in a higher cost of goods sold and a lower net income.