COST ACCOUNTING
METHODS OF COSTING
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
LIFO is equivalent to the opposite of FIFO.
|
|
|
As inventory is sold, the cost of the oldest units is applied to each unit as Cost of Goods Sold.
|
|
|
Ending inventory contains the oldest costing units.
|
|
|
These are all true.
|
Detailed explanation-1: -UnderLIFO since the most recently purchased are assumed to be first units sold, theinventory comprises of oldest units and oldest cost. Hence option (e) is false. All otherstatements are true.]
Detailed explanation-2: -The LIFO method assumes that the most recently purchased inventory items are the ones that are sold first. With this cash flow assumption, the costs of the last items purchased or produced are the first to be counted as COGS. Meanwhile, the cost of the older items not yet sold will be reported as unsold inventory.
Detailed explanation-3: -FIFO expenses the oldest costs first. In other words, the inventory purchased first (first-in) is first to be expensed (first-out) to the cost of goods sold. It provides a better valuation of inventory on the balance sheet, as compared to the LIFO inventory system.
Detailed explanation-4: -Last in, first out (LIFO) is one of these inventory valuation methods. It assumes that the last items placed in inventory are the first sold during an accounting year.