L.I.F.O. basis
F.I.F.O. basis
Simple average price
Weighted average price
Answer is Wrong!
Answer is Right!
The correct answer is: B. F.I.F.O. basis
First-in, first-out (FIFO) is a method of accounting for inventory that assumes that the first goods purchased are also the first goods sold. This means that the cost of goods sold is based on the cost of the oldest inventory items, and the ending inventory is based on the cost of the most recent inventory items.
During a period of rising prices, FIFO will result in a higher cost of goods sold and a lower ending inventory. This will, in turn, result in higher profits.
The other options are incorrect because they do not result in higher profits during a period of rising prices.
- L.I.F.O. (last-in, first-out) is a method of accounting for inventory that assumes that the last goods purchased are also the first goods sold. This means that the cost of goods sold is based on the cost of the newest inventory items, and the ending inventory is based on the cost of the oldest inventory items. During a period of rising prices, LIFO will result in a lower cost of goods sold and a higher ending inventory. This will, in turn, result in lower profits.
- Simple average price is a method of accounting for inventory that assumes that the cost of goods sold is based on the average cost of all the inventory items. During a period of rising prices, the simple average price will be higher than the cost of the most recent inventory items and lower than the cost of the oldest inventory items. This will, in turn, result in profits that are somewhere in between the profits that would be generated using FIFO and LIFO.
- Weighted average price is a method of accounting for inventory that assumes that the cost of goods sold is based on the weighted average of the cost of all the inventory items. During a period of rising prices, the weighted average price will be higher than the cost of the most recent inventory items and lower than the cost of the oldest inventory items. This will, in turn, result in profits that are somewhere in between the profits that would be generated using FIFO and LIFO.