Inventory Valuation Methods

What does FIFO stand for in the context of inventory valuation?

• Last In, First Out

• First In, First Out

• First In, Last Out

• First In, First Over

Explain the FIFO method of inventory valuation.

• The FIFO method assumes that the last items purchased are the first ones sold.

• The FIFO method assumes that the most expensive items are sold first.

• The FIFO method of inventory valuation assumes that the first items purchased are the first ones sold.

• The FIFO method assumes that the inventory is valued based on the average cost of all items.

What does LIFO stand for in the context of inventory valuation?

• First In, First Out

• Last In, Last Out

• First In, Last Out

• Last In, First Out

Describe the LIFO method of inventory valuation.

• The LIFO method of inventory valuation is based on the principle of First In, First Out.

• The LIFO method of inventory valuation is based on the principle of Average Cost.

• The LIFO method of inventory valuation is based on the principle of Specific Identification.

• The LIFO method of inventory valuation is based on the principle of Last In, First Out.

What is the main advantage of using the LIFO method?

• It results in higher taxes due to higher reported income

• It does not consider the actual flow of goods

• It allows for a more accurate matching of current costs with current revenues.

• It is more complex and time-consuming to implement

How is the weighted average method of inventory valuation calculated?

• Total cost of goods available for sale / Total number of units available for sale

• Total cost of goods sold / Total number of units available for sale

• Total cost of goods sold / Total number of units sold

• Total cost of goods available for sale / Total number of units sold

What are the advantages and disadvantages of using the weighted average method?

• The advantages include simplicity in calculation, while the disadvantages include inaccurate valuation of inventory.

• The advantages include lower cost of goods sold, while the disadvantages include increased complexity in record-keeping.

• The advantages include faster calculation, while the disadvantages include higher accuracy in valuation of inventory.

• The advantages include more accurate valuation of inventory, while the disadvantages include complexity in calculation and potential deviation from actual cost.

Compare and contrast the FIFO and LIFO methods of inventory valuation.

• FIFO method assumes that the most expensive inventory items are sold first

• FIFO method assumes that the oldest inventory items are sold first, while LIFO method assumes that the newest inventory items are sold first.

• FIFO method assumes that the newest inventory items are sold first

• LIFO method assumes that the oldest inventory items are sold first

In what situations would each of the inventory valuation methods be most appropriate?

• FIFO method is most appropriate when there is inflation, LIFO method is most appropriate when there is deflation, and Weighted Average method is most appropriate for stable pricing.

• Weighted Average method is most appropriate when there is high demand

• LIFO method is most appropriate when there is inflation

• FIFO method is most appropriate when there is deflation