The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the
A) weighted-average method.
B) moving average method.
C) FIFO method.
D) None of these are correct.

Question

Quizplus · Accepted Answer

The FIFO (first-in, first-out) method assumes that the first items purchased are the first items sold, and therefore the cost of goods sold reflects the most recent cost of the goods. This means that the older, lower-cost inventory remains on the balance sheet at its original cost, resulting in a book value that is the same as if periodic inventory records were used. The weighted-average and moving average methods would result in different book values for inventory under perpetual and periodic methods because they both use an average cost, which would be affected by changes in the cost of the raw material during the year.

The Acquisition Cost of a Certain Raw Material Changes Frequently