Question

What is the impact of a firm's inventory valuation method to inventory values and profit? Select...

What is the impact of a firm's inventory valuation method to inventory values and profit?

Select one:

a. A weighted average cost method will always result in highter inventroy values than the LIFO method and lower profit

b. The LIFO method always results in higher inventory values than the FIFO method and lower profits

c. The FIFO method always results in lower inventory values than the LIFO method and higher profits

d. A particular inventory valuation method has no effect on inventory value and or profit if all inventory is sold by the end of each fiscal period

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Answer #1

In the weighted average cost method, both COGS and inventory have the same per unit values. In LIFO method,where there is inflation, the COGS will be high, profits will be lower and inventory will be lower. Vice versa is true for FIFO method. In case there is no inflation mentioned, nothing can be concluded.

Therefore,

Answer - D. A particular inventory valuation method has no effect on inventory value and or profit if all inventory is sold by the end of each fiscal year.

Do let me know in the comment section in case of any doubt.

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