Average costing method treats the ending inventory exactly in the same way as the FIFO costing method.

Question

Quizplus · Accepted Answer

This statement is true. Both average costing and FIFO costing methods include the cost of goods sold as a combination of the costs of the units sold during the period, but the ending inventory is calculated differently. Under the average costing method, the cost per unit is calculated based on the total cost of goods available for sale divided by the total units available for sale. This cost is then applied to the remaining units in ending inventory to determine their value. Similarly, under the FIFO costing method, the ending inventory is valued based on the cost of the most recently purchased goods. Therefore, both methods consider the cost flow assumption for cost of goods sold before determining the value of ending inventory.

Average Costing Method Treats the Ending Inventory Exactly in the Same