Use the information below to answer the following question(s).Canadian Oil Company manufactures cooking oils.All direct materials are added at the beginning of the production process.The company currently uses the FIFO method.Data for the month of July is listed below.
-Unit costs of the weighted-average and FIFO methods will differ significantly when
A)direct materials or conversion costs per unit vary little from period to period.
B)physical inventory levels of work-in-process are small in relation to the number of units transferred out.
C)direct materials or conversion cost per unit vary greatly and physical inventory levels of work-in-process are large relative to the number of units transferred out.
D)conversion costs per unit vary greatly and physical inventory levels of work-in-process are small relative to the number of units transferred out.
E)direct materials or conversion costs per unit are similar and physical inventory of work-in-process are small relative to the number of units transferred in.

Question

Use the information below to answer the following question(s).Canadian Oil Company manufactures cooking oils.All direct materials are added at the beginning of the production process.The company currently uses the FIFO method.Data for the month of July is listed below. 
-Unit costs of the weighted-average and FIFO methods will differ significantly when
A)direct materials or conversion costs per unit vary little from period to period. 
B)physical inventory levels of work-in-process are small in relation to the number of units transferred out. 
C)direct materials or conversion cost per unit vary greatly and physical inventory levels of work-in-process are large relative to the number of units transferred out. 
D)conversion costs per unit vary greatly and physical inventory levels of work-in-process are small relative to the number of units transferred out. 
E)direct materials or conversion costs per unit are similar and physical inventory of work-in-process are small relative to the number of units transferred in.

Quizplus · Accepted Answer

The unit costs of the weighted-average and FIFO methods will differ significantly when direct materials or conversion cost per unit varies greatly and physical inventory levels of work-in-process are large relative to the number of units transferred out. This is because the FIFO method assumes that the first units added to work-in-process are the first units transferred out, whereas the weighted-average method averages the costs of all units added to work-in-process during the period, regardless of when they were added. When there are large physical inventory levels of work-in-process, the costs of the earlier units added under FIFO can differ significantly from the costs of the later units added, resulting in significant differences in unit costs between the two methods.

Use the Information Below to Answer the Following Question(s)