Which cost formula provides the better (1) income statement and (2) statement of financial position valuations, respectively?
A) (1) average and (2) FIFO
B) (1) FIFO and (2) average
C) (1) FIFO and (2) FIFO
D) (1) average and (2) average

Question

Quizplus · Accepted Answer

FIFO provides a better income statement valuation as it matches older costs with current revenues, reflecting current market conditions. Average cost provides a better statement of financial position valuation as it smooths out price fluctuations over time.

Which Cost Formula Provides the Better (1) Income Statement and (2)