Question

FIFO First in, first out LIFO Last in, first out WA Weighted average SI Specific identification The method that is used if each inventory item can be matched with a specific purchase and invoice. The method that will cause the company to have the lowest income taxes. The method that will cause the company to have the lowest cost of goods sold. The method that will assign a value to inventory that approximates current cost. The method that will tend to smooth out erratic changes in costs. A. WA B. LIFO C. Specific Identification (SI) D. FIFO E. FIF

Answer 1

The method that is used if each inventory item can be matched with a specific purchase and invoice. - Specific identification always yields results that depend on which units are sold. Advantage: Exactly matches costs and revenues.

The method that will cause the company to have the lowest income taxes. -LIFO assigns the highest amount to cost of goods sold resulting in the lowest gross profit and the lowest net income and therefor lowest income tax

The method that will cause the company to have the lowest cost of goods sold.- FIFO assigns the lowest amount to cost of goods sold resulting in the highest gross profit and the highest net income

The method that will assign a value to inventory that approximates current cost. - As sales occur, FIFO charges costs of the earliest units acquired to cost of goods sold, leaving costs of the most recent purchases in inventory

The method that will tend to smooth out erratic changes in costs. - Weighted average method yields results between FIFO and LIFO. Advantage: Smoothing out of price changes.