The cost of materials has risen steadily over the year. Which of the following methods of
estimating the ending balance of the materials inventory account will result in the highest
profit, assuming all other variables remain constant?

Answer (B) is correct.
Profit will be higher when cost of goods sold is lower, other factors held
constant. Cost of goods sold equals beginning inventory, plus purchases,
minus ending inventory. Accordingly, cost of goods sold will be lowest
when the ending inventory is highest. In an inflationary environment,
ending inventory is highest under FIFO because the older, less expensive
items are deemed to have been sold, leaving the more expensive items in
the ending inventory.