Question

If merchandise inventory is being valued at cost and the price level is decreasing, which of the three methods of costing--LIFO, FIFO, or weighted average will yield

a. the highest inventory cost

b. the lowest inventory cost

c. the highest gross profit

d. the lowest gross profit

2. A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included?

Answer 1

In FIFO mehtod we can sold goods first came first sold and when the price level is decreasing than closing inventory will be from the purchase of later purhcases.

Under LIFO method we can sold the last purchase first so it means cheaper purchased first and early purchased or costly purchased in later stage.

and in average cost cost will be valued on average cost

Answer = A) Hishest inventory cost will be FIFO because inital purchase is Costly

Answer = B) Lowest inventory cost will be LIFO method because sales later is cheaper

Answer =C) Heighest Grss profit is in LIFO method becasue the inventory cost is cheaper in this method

Answer = D) The Lowest Gross profit is in FIFO method becasue inventory cost ie heighest in this method.

Answer = 2)

MAterial unsold is in under possatton of Retailer's but in the mehtod of consignment basis the retailer will pay to manufacturer only when the goods are sold. it means it will be in stock of Manufacturer.

Answer = Manufacturer