Answer
The first In First Out (FIFO) method assumes that the most recently acquired inventory is matched against revenue while the average cost method assumes that inventory is issued or sold from the stock at hand. The Last In First Out method, on the other hand, assumes that the cost of the last goods purchased is matched against revenue.
Work Step by Step
The three methods are in most cases applied where there is a direct relationship between the nature of goods as well as how the stay in the warehouse affects their price. For instance, perishable products are likely to be use LIFO method with the intention of fetching high prices by selling fresh products.
