Certainly! Let's analyze each of the inventory costing methods listed in the options to identify which one uses the cost of the oldest purchases to compute the cost of goods sold:
1. Specific Identification: This method tracks the actual cost of each individual item of inventory. Thus, the cost of goods sold (COGS) is calculated based on the specific cost of the items sold, not necessarily the oldest or newest.
2. Weighted Average: This method calculates the cost of goods sold by averaging the cost of all items available for sale during the period. It does not specifically use the oldest or newest costs but rather a blended average cost.
3. LIFO (Last-In, First-Out): This method assumes that the most recently purchased items (the newest) are the first to be sold. Therefore, the cost of the newest items is used to calculate the cost of goods sold.
4. FIFO (First-In, First-Out): This method assumes that the oldest items are sold first. Consequently, the cost of the oldest purchases is used to compute the cost of goods sold.
By carefully examining each method, we can determine that the FIFO (First-In, First-Out) method uses the cost of the oldest purchases to compute the cost of goods sold.
Thus, the correct answer is:
O FIFO
