When purchase costs regularly rise, the inventory costing method that yields the highest reported net income is:Multiple ChoiceSpecific identification method.Average cost method.Weighted-average method.FIFO method.LIFO method.
Question
When purchase costs regularly rise, the inventory costing method that yields the highest reported net income is:Multiple ChoiceSpecific identification method.Average cost method.Weighted-average method.FIFO method.LIFO method.
Solution
When purchase costs regularly rise, the inventory costing method that yields the highest reported net income is the FIFO (First-In, First-Out) method.
Here's why:
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The FIFO method assumes that the first goods purchased (the first in) are the first goods sold.
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This means that the cost of the oldest inventory is used to calculate the cost of goods sold, which is subtracted from revenue to calculate net income.
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When purchase costs are rising, the older inventory will have a lower cost compared to the newer inventory.
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Therefore, using the FIFO method will result in a lower cost of goods sold and a higher net income compared to other inventory costing methods.
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The other methods like LIFO (Last-In, First-Out), Specific Identification, Average Cost, and Weighted-Average might result in a higher cost of goods sold and a lower net income because they might use the cost of the newer, more expensive inventory to calculate the cost of goods sold.
Similar Questions
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