In times of rising prices, the valuation of inventory using the First In First Out method/ as opposed to the Weighted Average Cost method, will result in which ONE of the following combinations?
A、Cost of sales Profit Closing inventory Lower Higher Higher
B、Cost of sales Profit Closing inventory Lower Higher Lower
C、Cost of sales Profit Closing inventory Higher Lower Higher
D、Cost of sales Profit Closing inventory Higher Higher Lower
A、Cost of sales Profit Closing inventory Lower Higher Higher
B、Cost of sales Profit Closing inventory Lower Higher Lower
C、Cost of sales Profit Closing inventory Higher Lower Higher
D、Cost of sales Profit Closing inventory Higher Higher Lower
【参考答案及解析】
When prices are rising, FIFO will give a higher valuation for closing inventory, because the closing inventory will consist of the most recently-purchased items. Higher closing inventory means lower cost of sales and higher profit.
When prices are rising, FIFO will give a higher valuation for closing inventory, because the closing inventory will consist of the most recently-purchased items. Higher closing inventory means lower cost of sales and higher profit.