During a period of rising prices, which statement correctly compares FIFO and AVCO inventory valuation methods?

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Question

During a period of rising prices, which statement correctly compares FIFO and AVCO inventory valuation methods?

Accepted Answer

FIFO produces a higher gross profit than AVCO — Award 1 mark for understanding that when prices rise, FIFO charges older, lower costs to cost of sales, resulting in higher gross profit and higher closing inventory values. A is incorrect — FIFO produces higher closing inventory. B is incorrect — FIFO produces lower cost of sales. D is incorrect — the methods produce different gross profits when prices change.

Answer

FIFO produces a higher gross profit than AVCO

Answer

FIFO produces a higher cost of sales than AVCO

Answer

FIFO produces a lower closing inventory value than AVCO

Answer

FIFO produces the same gross profit as AVCO

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