If prices are falling, FIFO will report the lower profit, and weighted average the higher.

Name: If prices are falling, FIFO will report the lower profit, and weighted average the higher.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

This is because FIFO assumes that the items sold were the ones bought earliest, which would have cost more when prices were higher. Weighted average, on the other hand, spreads the cost evenly across all units, leading to a higher profit when prices are falling.

If Prices Are Falling, FIFO Will Report the Lower Profit