Which cost determination method smoothes the effects of price changes?
A)Specific identification
B)FIFO
C)Average cost
D)Lower of cost and net realizable value

Question

Quizplus · Accepted Answer

Average cost method calculates the cost by averaging the costs of all the similar items in inventory, which helps in smoothening the effects of price changes. This method is beneficial when there is an inflationary environment, and prices keep fluctuating. In such cases, the average cost method helps in keeping the cost of goods sold stable, giving a better picture of the company's financial health.

Which Cost Determination Method Smoothes the Effects of Price Changes