If the cost of materials increased from January to February and there is beginning inventory for each month, which of the following statements would be true? (Assume all other factors are held constant.)
A)Only the weighted average method would result in an increase in the unit cost for February.
B)Only the FIFO method would result in an increase in the unit cost for February.
C)Both the weighted average method and the FIFO method would result in an increase in the unit cost for February; however, the weighted average method would result in a greater unit cost for units in February than the FIFO method.
D)Both the weighted average method and the FIFO method would result in an increase in the unit cost for February; however, the FIFO method would result in a greater unit cost for units in February than the weighted average method.

Question

Quizplus · Accepted Answer

The FIFO method assumes that the units sold or used first are the ones purchased first, so the cost of materials from the beginning inventory (which was purchased at a lower cost) is assigned to the units sold or used first. This leaves the higher cost materials assigned to the ending inventory and newer units. Therefore, there will be a greater unit cost for units in February using the FIFO method. The weighted average method calculates the average cost of materials for all units, including the beginning inventory, so the increase in materials cost will result in an increase in the unit cost for units in February. However, the FIFO method will result in a greater increase in the unit cost.

If the Cost of Materials Increased from January to February