Multiple Choice
Financial ratios are traditionally grouped in all but which of the following categories?
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5. Inventory
Financial Statement Effects of Inventory Costing Methods
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Which inventory costing method assumes that the units sold are the most recent units purchased?
A
FIFO (First-In, First-Out)
B
LIFO (Last-In, First-Out)
C
Weighted Average Cost
D
Specific Identification
Verified step by step guidance1
Understand the inventory costing methods listed in the problem: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), Weighted Average Cost, and Specific Identification.
Recall the definition of LIFO (Last-In, First-Out): This method assumes that the most recent inventory purchased is sold first, meaning the cost of the latest purchases is used to calculate the cost of goods sold.
Compare LIFO with FIFO: FIFO assumes the oldest inventory is sold first, while LIFO assumes the newest inventory is sold first.
Consider Weighted Average Cost: This method calculates the cost of goods sold based on the average cost of all inventory items, rather than identifying specific units.
Review Specific Identification: This method tracks the cost of each individual inventory item, which is useful for unique or high-value items, but does not assume any particular order of sale like LIFO or FIFO.
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