Multiple Choice
According to the FIFO (First-In, First-Out) inventory method, the carton stored in front should have which use-by date?
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5. Inventory
Periodic Inventory - FIFO, LIFO, and Average Cost
Multiple Choice
An advantage of the weighted average method under a periodic inventory system is that it:
A
smooths out price fluctuations over the accounting period
B
matches the most recent costs with current revenues
C
requires tracking the cost of each individual inventory item
D
always results in the highest net income during periods of rising prices
Verified step by step guidance1
Understand the weighted average method: This method calculates the cost of inventory by averaging the cost of all inventory items available for sale during the accounting period. It does not focus on individual item costs but rather smooths out price fluctuations.
Recognize the purpose of the periodic inventory system: In this system, inventory is updated at the end of the accounting period, and the weighted average method helps to simplify the calculation of the cost of goods sold (COGS).
Analyze the impact of price fluctuations: The weighted average method smooths out price fluctuations by averaging costs, which prevents drastic changes in inventory valuation due to varying purchase prices.
Compare the weighted average method to other methods: Unlike FIFO (First-In, First-Out) or LIFO (Last-In, First-Out), the weighted average method does not match the most recent costs with current revenues or result in the highest net income during periods of rising prices.
Conclude the advantage: The key benefit of the weighted average method under a periodic inventory system is its ability to smooth out price fluctuations over the accounting period, making inventory valuation more stable and predictable.
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