The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the rapidity of the inventory turnover and the
A)change in accounts receivable turnover.
B)divergence of total asset turnover from previous periods.
C)severity of input cost change.
D)rapidity of fixed asset turnover.

Question

Quizplus · Accepted Answer

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the severity of input cost change. This is because FIFO method assumes that the cost of goods sold is based on the oldest inventory, while replacement cost method assumes that the cost of goods sold is based on the current replacement cost of inventory. If the input cost changes rapidly, then the replacement cost of inventory may be significantly different from the FIFO cost of goods sold, resulting in a large divergence between the two methods. The other options are not directly related to the divergence between FIFO and replacement cost of goods sold.

The Size of the Divergence Between FIFO Cost of Goods