Swing Ltd uses FIFO for its inventory,which is valued at $21 000.It is considering a change to moving weighted average,which would change the valuation of inventory to $22 500.Which of the following would be decreased by the change?

Question

Quizplus · Accepted Answer

FIFO assumes that the earliest items purchased are sold first, so the cost of goods sold (COGS) is based on the cost of the earliest inventory items. Moving weighted average incorporates the cost of all inventory purchases, so the average cost per unit may be higher or lower than the cost of the earliest inventory items. In this case, the change to moving weighted average results in a higher valuation of inventory, which means that the cost of goods sold would decrease in order to maintain the gross profit margin. Therefore, the correct answer is A) cost of goods sold.

Swing Ltd Uses FIFO for Its Inventory,which Is Valued at $21