Which inventory costing method calculates the cost of goods sold using the last purchases?

The correct answer is the last in, first out method, which calculates the cost of goods sold based on the most recent purchases first. This method assumes that the last items added to inventory are the first ones to be sold. As a result, during periods of rising prices, the last in, first out method typically leads to a higher cost of goods sold and lower ending inventory values because it matches higher current costs to revenues.

Using this approach provides businesses with a way to match current costs with revenues, which can have tax implications and affect financial statements. Compared to other methods, such as first-in, first-out or the weighted-average method, the last in, first out method directly reflects the most recent purchase prices, which can yield different net income and inventory valuations, especially in times of inflation or price changes.