Question

The​ first-in, first-out​ (FIFO) method creates better​ month-to-month cost comparisons than the​ weighted-average method​ ________.

A. because it merges costs from the prior period with the current period

B. because it does not recognize transferred in units from other processes

C. when there are substantial quantities of units in process at the end of the period

D. because it is used by industries that do not experience significant cost changes

Answer 1

Correct answer--- (c) when there are substantial quantities of units in process at the end of the period.

Explanation

When there are no significant cost changes then results of both methods would show nominal differences, as cost of beginning inventory and cost added would be at same proportions.

FIFO does not merges costs from the prior period with the current period. Cost of prior period cost and current period cost is merged in case of weighted average method.

FIFO gives a better result when there are high quantities of WIP at the end of each period. Cost associated with beginning inventory and current period is separated which gives better view of cost of production. This is because in FIFO it is assumed that units unfinished from last period or month are completed first and then new units are started for production.

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