Which inventory valuation method is based upon the last price paid for an item?

The correct answer is based on the principle that the method values inventory based on the most recent costs incurred. In this case, the valuation method called LIFO, or "Last In, First Out," determines that the most recently purchased items (or the last price paid) are the ones that are used first in terms of accounting for the cost of goods sold. This means that for inventory valuation, LIFO assumes that the latest costs are reflected in the financial statements when calculating expense amounts related to sold inventory.

Utilizing LIFO can have significant implications during periods of inflation, as the cost of goods sold can be matched with the higher prices of newer inventory, leading to lower profits and tax liabilities in the short term. This method contrasts fundamentally with other inventory methods such as FIFO (First In, First Out), which would assign value based on the earliest costs incurred, and weighted average purchase price, which averages the cost over all units available.