Question

Which one of the following is incorrect?

1) According to the FIFO method, the accounting assumption is that materials received or purchased first are issued first. It is assumed that the units are issued in the order received, the oldest units first and then the units received from the next batch etcetera.

2) The weighted average method makes no assumptions about the flow of materials. The issuing of materials at a weighted average cost assumes that each batch taken from the storeroom is made up of the same quantities from each consignment in inventory at the date of issue. No attempt is made to identify when the units were purchased.

3) If the Ms. Nkuhlu uses the FIFO method of inventory valuation, the value of item to be on hand would be; R24 345.

4) If the Ms. Nkuhlu uses the weighted average method valuation, the value of item to be on hand would be; R23 493.

Answer 1

Statement 1 and 2 are correct.

FIFO method assumes that the oldest products in a company's inventory list have been sold first.

Under weighted average method, the cost of goods available for sale is the sum of beginning inventory and net purchases. No attempt is made to identify when the units were purchased.

Further information is required to consider points 3 and 4. Only the value of inventory under the 2 methods has been provided, details regarding the purchases of the same (date, quantity and price) and detail of opening inventory is also required