LIFO, FIFO, & Weighted Average Inventory Methods
CPA Auditing and Attestation (AUD) · Learn by Concept
Help Questions
CPA Auditing and Attestation (AUD) › LIFO, FIFO, & Weighted Average Inventory Methods
Which inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
FIFO
Weighted average
Moving average
LIFO
Explanation
In a period of rising prices, the oldest inventory, or the inventory used in FIFO would be the least expensive. Thus, the profit margin would be the largest here.
Assuming constant inventory quantities, which of the following inventory costing methods will produce a lower inventory turnover ratio in an inflationary economy?
LIFO
Moving average
FIFO
Weighted average
Explanation
In a period of rising prices, the oldest inventory, or the inventory used in FIFO would be the least expensive. Thus, the profit margin would be the largest here.
During periods of inflation, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory valuation methods?
FIFO
FIFO and LIFO
Neither
LIFO
Explanation
Only under FIFO would the use of a perpetual system result in the same dollar amount of ending inventory as a periodic system.
Which of the following costing methods will yield the lowest inventory value?
Variable
Process
Hybrid
Absorption
Explanation
Variable costing typically produces the lowest inventory values since only variable costs are capitalized.
Which of the following costs is deducted from revenues of a manufacturing company in order to determine gross margin, but not deducted from revenues to determine contribution margin?
Variable manufacturing
Fixed manufacturing
Variable selling and administrative
Fixed selling and administrative
Explanation
Under the absorption approach, all fixed and variable manufacturing overhead is part of cost of goods sold to determine an entity's gross margin.
The equivalent units of production method can be calculated by using either:
FIFO or LIFO
FIFO or weighted average
LIFO or weighted average
LIFO or moving average
Explanation
Using the FIFO method accounts for work to be finished and using the weighted average method blends the units.