Which of the following statements is correct?
A)The choice of an inventory costing method is dependent upon the actual physical flow of the goods in inventory.
B)LIFO should be used during a period of increasing unit costs when the objective is to maximize the ending inventory value on the balance sheet.
C)FIFO should be used during a period of decreasing unit costs when the objective is to maximize the gross profit reported on the balance sheet.
D)The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory unit costs are changing.

Question

Quizplus · Accepted Answer

The average cost method takes the weighted average of unit costs and will result in an ending inventory balance between LIFO and FIFO when inventory unit costs are changing. Option A is incorrect as the choice of inventory costing method can be based on various factors, not just the actual physical flow of goods. Option B is incorrect as LIFO is used during a period of decreasing unit costs, not increasing unit costs. Option C is incorrect as FIFO is used during a period of increasing unit costs, not decreasing unit costs.

Which of the Following Statements Is Correct