The accounting for the costs of inventory depends on the cost flow method you chose. The four ones in common use are last in, first out (LIFO), first in, first out (FIFO), specific identification and weighted average cost. Each method can give a different value to ending inventory, cost of goods sold and net income. A higher COGS creates a lower, though not necessarily realistic, net income and reduces taxes.
Reality
A company's net income is "realistic" if it arises from a matching of COGS to revenues. Matching of costs and revenues is a central feature of accrual accounting under generally accepted accounting principles. Since net income appears on the income statement, the realistic method is the one in which costs most closely tie to revenues for the period. You might get a different answer if you ask which method gives you the most realistic ending inventory -- it should give an answer that values ending inventory at current values and thus provides the most realistic view of the company's balance sheet assets.
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LIFO
Under LIFO, you make believe you sell your most recently purchased inventory items first. The real inventory flow might bear no resemblance to the cost flow -- you might actually sell your oldest items first and still adopt LIFO for accounting purposes. LIFO gives the most realistic net income value because it matches the most current costs to the most current revenues. Since costs normally rise over time, LIFOs can result in the lowest net income and taxes.
FIFO
GAAP also allows the FIFO method, which assumes you sell your inventory items as if they were stored in a queue. You sell the oldest inventory items ahead of the most recent ones. This doesn't fit well with GAAP requirements for realistic net income since you match obsolete prices with the most current revenues. Conversely, FIFO gives you the timeliest value for ending inventory, since the unsold items reflect the most current costs. In periods of rising prices, FIFO leads to the highest income and taxes.
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Other Methods
Specific identification of the cost and revenue for each inventory item gives the most realistic values for COGS and ending inventory. However, this might not be the case for net income if you purchase identical items at different prices. Your choice of which one you sell might be random and thus not satisfy the matching principle. For example, if you receive three shipments of identical diamond earring sets at different prices, you might be able to identify each specific earring set. Nevertheless, if you sell the oldest one first, your haven't matched current costs to revenues. The weighted average cost method gives realistic net income only if you purchase all available-for-sale units of the same merchandise item at identical prices.
References
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