A company decides which inventory amounts to record to cost of goods sold and which amounts remain in ending inventory:
A)Through application of the cost-benefit constraint.
B)By selecting one of four possible inventory costing methods.
C)By selecting the cost principle.
D)Through application of the conservation constraint principle.
E)Is the lower of cost or market principle.

Question

Quizplus · Accepted Answer

The company chooses to use one of the four inventory costing methods (FIFO, LIFO, weighted average, or specific identification) to determine which inventory amounts are recorded as cost of goods sold and which amounts remain in ending inventory. This decision can have a significant impact on the financial statements, so it is important for the company to carefully consider which method to use. A and C are not accurate choices, as the cost-benefit constraint and cost principle do not specifically relate to the inventory costing decision. D is not a relevant concept in this context, and E is a principle that applies specifically to the valuation of inventory, not the allocation of inventory costs.

A Company Decides Which Inventory Amounts to Record to Cost