Inventory Costing Method Quiz

During a period of rising costs, FIFO results in higher taxable income compared to LIFO.

Under Specific Tracks Identification (SI), companies with higher inventory turnover are advised to use this method.

In a period of increasing costs, using the average cost method will result in higher net income compared to FIFO.

Regardless of the accounting method used, the balance sheet value for ending inventory will always be lower during periods of increasing costs.

Companies should vary their chosen cost accounting method year after year to avoid monotony in financial reporting.

With rising costs, the cost of goods sold (COGS) under Specific Tracks Identification (SI) will be lower than under FIFO.

The Weighted Average Cost (WAC) method calculates the average unit cost over a period by dividing total units available for sale by total cost available for sale.

Higher prices lead to a lower margin of error when using FIFO compared to LIFO.

Using FIFO accounting method during inflationary periods will result in higher shareholder equity on the balance sheet.

When choosing an inventory cost accounting method, companies should focus on how it impacts their balance sheets and income statements.