ECONOMICS

Detailed explanation-1: -Average cost method is best suitable when the prices are fluctuating considerably because this method tends to smooth out fluctuation in prices.

Detailed explanation-2: -Average cost method assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced. Average cost method is also known as weighted-average method.

Detailed explanation-3: -First-in-first-out (FIFO) method is used when transactions are not voluminous and the prices of material are falling down because the issue price of material to job will be high.

Detailed explanation-4: -Inflated price method is used when the material are subject to natural loss/wastage due to climatic conditions. In this method, a predetermined percentage is added to the price to the extent of loss.

Detailed explanation-5: -Highest in First Out (HIFO) Method: During a period of increasing price level, the method is equivalent to LIFO method and in a period of decreasing price level, the method is identical with FIFO method.