Which pricing method results in higher COGS when prices are increasing?

The choice of LIFO, or Last In, First Out, leads to higher Cost of Goods Sold (COGS) in an environment where prices are rising. Under this method, the most recently purchased inventory costs are considered to be the first ones sold. Therefore, if prices are increasing, the costs associated with the most recent purchases—generally higher than earlier purchases—will be recorded as the COGS.

As a result, using LIFO in an inflationary scenario results in a higher COGS figure, which subsequently lowers net income and tax liability for the period. This contrasts with FIFO, where the oldest inventory costs are recognized first, often resulting in a lower COGS during inflation because older, lower costs are matched against current revenues. The average cost method blends costs over a period, smoothing out fluctuations and typically resulting in COGS that is between what FIFO and LIFO would report. Specific identification can vary widely based on actual costs of individual items sold.

Thus, the specific dynamic of LIFO in increasing price conditions solidifies it as the method producing the highest COGS, which is why this choice is the correct answer.