Analyze the financial reporting and tax effects of the various inventory costing methods.

- If the prices paid for purchased inventory are stable, all inventory costing methods will yield the same amounts for ending inventory and cost of goods sold.

- When purchase prices vary, FIFO and the weighted average cost methods will produce different amounts for ending inventory, cost of goods sold, and, therefore, income.

- When prices are rising, the FIFO method produces the highest cost for ending inventory, the lowest cost of goods sold, and the highest gross margin (and net income).
- When purchase prices are falling, the situation is reversed.