In a period of rising prices,a company is most likely to use the specific identification method of pricing inventory if:
A)Each item in the inventory is unique.
B)Management wants the same unit cost assigned to items sold and items remaining in inventory.
C)Management's primary objective is to minimize income taxes.
D)Management wants the company's income statement to indicate the highest possible amounts of gross profit and net income.

Question

Quizplus · Accepted Answer

The specific identification method of inventory costing involves determining the cost of each specific item in inventory. This method is most appropriate for items that are unique, such as artwork or custom-made products. In a period of rising prices, using this method may result in a higher cost of goods sold (because the cost of the specific item sold may be higher than the average cost of all items in inventory), but it will also result in a higher ending inventory value (because the cost of the specific items remaining in inventory may be lower than the average cost of all items in inventory). Therefore, management may choose this method in order to accurately reflect the true value of their inventory.

In a Period of Rising Prices,a Company Is Most Likely