ACCA MA · Chapter 4 · Question 7 of 11
When prices are rising, how does FIFO compare with AVCO?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) FIFO gives a higher closing inventory value and a higher profit
Explanation
Under FIFO, issues are charged at the older (cheaper) prices, so cost of sales is lower and profit is higher. Closing inventory is valued at the most recent (higher) prices, so it is higher than under AVCO, which mixes older and newer prices.
More Accounting for materials MCQs
- Q9Annual demand for a material is 36,000 units, with a purchase price of $10 per unit. Ordering costs are $40 per order, and holding costs…
- Q10A stores record shows 2,400 units of a material physically in stock, 1,500 units on order from suppliers but not yet received, and 1,100…
- Q11Which of the following is an inventory holding cost?
- Q1Annual demand for a component is 36,000 units. Each order costs $40 to place, and holding one unit in inventory costs $2 per year. What is…
- Q2A company uses 20,000 units of a material each year. The purchase price is $20 per unit, ordering costs are $50 per order, and holding…