In an inflationary period, which inventory method—FIFO, LIFO, average cost—will show the highest net income? 

The inventory method which would produce the greatest net profit in an inflationary phase is the Last-in, First Out (LIFO). It is due to the fact that when goods prices increase, LIFO will match costs for new inventory and current sales. This results in a higher cost of good sold. In addition, LIFO reflects market values and reduces profits by not selling unsold products.

FIFO assumes the older inventory will be sold in first place, but this may not reflect true market conditions in times of inflation. This method fails to take into account rising costs which can lead to inflated profits and higher taxes. The average cost is not able to differentiate between new and old stock, and therefore cannot account for price changes. This makes it an unreliable measure during inflationary periods.