Tyson Corporation bought raw materials on April 23, 2008 and also on July 2, 2008. Products produced during the months of May were sold in July. The firm uses FIFO to value its inventory. According to the matching principle, the firm's accountant should associate:
A) the inventory acquired on July 2 with the products sold.
B) the inventory acquired on April 23 with the products sold.
C) neither of these dates is valid because the products were sold in July.
D) None of the above.

Question

Quizplus · Accepted Answer

The matching principle requires that expenses be matched with the revenues they help generate. Since the products produced in May were sold in July, the cost of the materials used to produce those products should be associated with the July revenue. Using FIFO, the cost of the raw materials acquired on April 23 would be the first to be assigned to the cost of the products sold in July. Therefore, the accountant should associate the inventory acquired on April 23 with the products sold.

Tyson Corporation Bought Raw Materials on April 23, 2008 and Also