Chapter 6, Analyzing Inventory—Costing Methods, Review, Exercise 6-1

The FIFO method is chosen because it reflects the physical flow of goods most closely as it is the method that records the flow of goods according to the goods that are first purchased or added to the inventory and as a result, there is a better recognition of the flow of goods from and to the inventory. 

This method is most beneficial when recording the physical flow of goods that have a perishable nature and the goods that are bought first are the goods to be moved out of the inventory first due to the risk of deterioration and decay.

The LIFO method expenses the costs of the most recent purchased units first and as a result, this method reports the highest cost of goods sold for a period in the case of Company H. Therefore, with the highest recorded cost of goods sold, the method records the lowest income and the lowest income taxes.