Under the FIFO method, the materials issued to production are valued at prices paid for the most recent purchase prices.

INTRODUCTION TO COST ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	TRUE
B	FALSE

Explanation:

Detailed explanation-1: -The FIFO method of costing is based on the assumption that the various lots of materials that are purchased are used in the same order in which they are received. That is to say, the materials are issued from the oldest supply in stock in this method of costing.

Detailed explanation-2: -First In, First Out, commonly known as FIFO, is an asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first. For tax purposes, FIFO assumes that assets with the oldest costs are included in the income statement’s cost of goods sold (COGS).

Detailed explanation-3: -Therefore, When the FIFO method is in use, the closing inventory is valued at the recent cost paid.

Detailed explanation-4: -When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise.

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