Question

1) Which of the three inventory cost formulas will a company use if its goods available for sale are identical?

A) Average Cost Method

B) Average Cost of FIFO Method

C) FIFO Cost Method

2) Which cost formula matches the actual physical flow of merchandise?

A) Specific Identification Method

B) Average Cost of FIFO Method

C) FIFO Cost Method

Answer 1

1) Which of the three inventory cost formulas will a company use if its goods available for sale are identical?

Answer : Average Cost Method

Average cost method is suitable for companies that sell indistinguishable or identical products. It is preferable to use weighted Avg method where it is difficult to find the cost associated with individual units.

2) Which cost formula matches the actual physical flow of merchandise?

Answer :FIFO Cost Method

Actual flow of goods is best matched with FIFO Cost Method. Actual physical flow of merchandise is that typically a seller will try to sell the oldest inventory with him before selling the newest inventory.