Two companies report the same cost of goods available for sale but each employs a different inventory cost formula. If the price of goods has increased during the period, then the company using
A) FIFO will report lower ending inventory.
B) average cost will report lower ending inventory.
C) FIFO will report higher cost of goods sold.
D) average cost will report lower cost of goods sold.

Question

Quizplus · Accepted Answer

When prices are rising, the average cost method results in a lower ending inventory compared to FIFO, which uses the oldest costs for cost of goods sold, leaving newer, higher costs in ending inventory.

Two Companies Report the Same Cost of Goods Available for Sale