Question

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Select from the option list provided the inventory cost flow assumption for each explanation below. Each choice may be used once, more than once, or not at all.

Item	Answer
1. Results in the highest cost of goods sold if prices are rising.
2. Unaffected by whether a perpetual or periodic system is used if goods are not specifically identified.
3. Reflects the actual physical flow of goods.
4. Determines cost only at period end but usable in a perpetual system that records only quantities.
5. Ending inventory approximates current replacement cost.
6. Requires an estimate of price-level changes for specific inventories.

Scroll down to complete all parts of this task.

Select from the option list provided the inventory cost flow assumption for each explanation below. Each choice may be used once, more than once, or not at all.

Item Answer

1. Results in the highest cost of goods sold if prices are rising.

2. Unaffected by whether a perpetual or periodic system is used if goods are not specifically identified.

3. Reflects the actual physical flow of goods.

4. Determines cost only at period end but usable in a perpetual system that records only quantities.

5. Ending inventory approximates current replacement cost.

6. Requires an estimate of price-level changes for specific inventories.

Answer 1

Item	Answer
1. Results in the highest cost of goods sold if prices are rising.	LIFO, because under this method, cost of goods sold is taken from the ‘latest’ purchase rate which tends to be higher if price are rising.
2. Unaffected by whether a perpetual or periodic system is used if goods are not specifically identified.	FIFO method, the results are same whether perpetual method is being followed or periodic method.
3. Reflects the actual physical flow of goods.	FIFO
4. Determines cost only at period end but usable in a perpetual system that records only quantities.	Weighted Average method, where average cost is computed at period end.
5. Ending inventory approximates current replacement cost.	FIFO, as the ending inventory are valued at the purchase rate of ‘latest purchases’ made.
6. Requires an estimate of price-level changes for specific inventories.	Specific Identification