Which inventory valuation method is based on the oldest price paid for an item?

The correct answer is based on the First-In, First-Out (FIFO) method, which values inventory based on the oldest price paid for an item. FIFO assumes that the oldest inventory items are sold first, meaning that the cost associated with the older inventory is used when calculating the cost of goods sold and the value of remaining inventory.

In a typical inventory system, as inventory is sold or used, it is the oldest costs that are matched against revenues during the accounting period. This methodology reflects a more accurate representation of the current market value of remaining inventory, particularly if prices are rising, as the most recently acquired items tend to be more expensive.

The other methods mentioned do not align with the concept of valuing inventory based on the oldest price. The Latest purchase price method focuses on the most recent costs, while the Weighted average purchase price calculates an average cost for items, blending old and new prices. The Last-In, First-Out (LIFO) method, conversely, is structured around the most recently acquired inventory being considered sold first, impacting profit and tax calculations differently than FIFO. Thus, FIFO is correctly associated with using the oldest prices in its valuation method.