Which inventory valuation method typically results in the highest taxable income during periods of rising prices?

The method that typically results in the highest taxable income during periods of rising prices is the First In, First Out (FIFO) method. This occurs because FIFO assumes that the oldest inventory items are sold first. In a scenario where prices are increasing, the older inventory, which was purchased at lower costs, is matched against current revenues. Consequently, the cost of goods sold (COGS) calculated using FIFO will be lower than that calculated using other methods like LIFO. Lower COGS leads to higher reported profits, and ultimately, a higher taxable income.

In contrast, the Last In, First Out (LIFO) method assigns the cost of the most recently acquired inventory to the cost of goods sold first. This means in a rising price environment, LIFO would reflect higher costs, lower profits, and thus lower taxable income. The Average Cost Method would yield moderate results, averaging the cost across all inventory rather than reflecting the significant fluctuations seen with FIFO and LIFO. Standard Costing might not specifically address the fluctuations in purchase prices and thus would not always result in the highest taxable income in this scenario. Hence, under rising prices, FIFO leads to a higher taxable income due to its cost flow assumption.