All production costs have been steadily rising in the Donner Company for several periods. The company maintains large work in process inventories. Donner Company's cost per equivalent unit computed using the first-in, first-out method would be:
A) the same as that computed under the weighted-average method.
B) higher than that computed under the weighted-average method.
C) lower than that computed under the weighted-average method.
D) could be lower than, the same as, or higher than that computed under the weighted-average method.

Question

Quizplus · Accepted Answer

The FIFO (First-In, First-Out) method would result in a higher cost per equivalent unit than the weighted-average method in this scenario because FIFO considers the costs of the most recent period for the units completed and transferred out. Given that production costs have been steadily rising, the costs assigned to the units under FIFO would be based on these higher recent costs, whereas the weighted-average method blends older, lower costs with the newer, higher costs, resulting in a lower average cost per unit.

All Production Costs Have Been Steadily Rising in the Donner