Selection of an inventory cost formula by management should be influenced most by the
A) physical flow of goods.
B) goal of reporting inventory at its lowest cost.
C) fiscal year end.
D) income tax effects.

Question

Quizplus · Accepted Answer

The physical flow of goods should be the primary factor in selecting an inventory cost method. This ensures that the cost of goods sold and ending inventory are based on the actual flow of goods, and provides an accurate representation of the company's financial position. While income tax effects and fiscal year end may be important considerations, they should not be the primary factor in selecting an inventory cost formula. Similarly, the goal of reporting inventory at its lowest cost may not necessarily be the most accurate representation of a company's financial position.

Selection of an Inventory Cost Formula by Management Should Be