The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the severity of input cost changes and the rapidity of physical inventory turnover.

Question

Quizplus · Accepted Answer

The statement is true. The FIFO costing method assumes that the first units purchased or produced are the first ones sold, and it can lead to a divergence between the cost of goods sold using this method and replacement cost of goods sold, especially when there are significant changes in input costs or when inventory turnover is rapid.

The Size of the Divergence Between FIFO Cost of Goods