PRC-1 · Chapter 7 · Question 95 of 100
Which of the following operational scenarios provides the strongest justification for an entity to use the Weighted Average Cost (AVCO) formula?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The inventory consists of a large number of homogeneous items (like liquid fuel or grains) that are mixed together and cannot be separately identified.
Explanation
AVCO is highly appropriate when items are physically indistinguishable and mixed together, making it impossible (or impractical) to identify the specific cost of individual units sold.
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