Question

In what respects does FIFO provide more useful information than average?

Answer 1

FIFO and Weighted avarage are most commenly using Inventory valuation method. used for cost flow assumption purposes in the cost of goods sold calculation. FIFO stand for First in first out method. Which means the oldest product are sold first. In average selling everything together .No idea about which product is selling first.

Actually FIFO is generally using in most of shops. Because every person has the basic idea that first purchased product should sell first . An item with an expiry date should follow FIFO method. This will definitly reduce the loss. The method is easy to understand, universally accepted . FIFO method is the natural flow of inventory (oldest products are sold first, with accounting going by those costs first). This makes accounting more easier with less complications and lesser of mistakes.The weighted-average method also allows manipulation of income. FIFO method is a systamtic method. And it is an orderly management of inventory.

A business which is in the trading of perishable items generally sells the items which are purchased earliest first, FIFO method of inventory valuation generally gives the most accurate calculation of the inventory and sales profit.