In which circumstance is the FIFO method more likely to be preferred in determining the costs of processing?
A) there are regularly little work-in-process inventories on hand.
B) there are never any work-in-process inventories on hand.
C) there are regularly substantial work-in-process inventories on hand.
D) staff in the accounting department lack expertise and experience in costing.

Question

Quizplus · Accepted Answer

When there are regularly substantial work-in-process inventories on hand, FIFO (First-In, First-Out) method is more likely to be preferred in determining the costs of processing because it assumes that the oldest costs are incurred first and the newer costs are incurred later. This method is more appropriate for companies that have large inventories of perishable goods or goods that have a short shelf life, as it ensures that the cost of goods sold (COGS) accurately represents the actual cost of producing the goods. In contrast, if there are little or no work-in-process inventories, other methods like LIFO (Last-In, First-Out) or Average Cost may be more appropriate. The lack of expertise and experience in costing is not a determining factor in selecting a particular cost method.

In Which Circumstance Is the FIFO Method More Likely to Be