In periods of falling prices, FIFO will result in the same ending inventory valuation as the average cost formula.

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Quizplus · Accepted Answer

In periods of falling prices, FIFO will result in a higher ending inventory valuation compared to the average cost formula. This is because under FIFO, the newer, higher-priced inventory is assumed to be sold first, leaving the lower-priced inventory in the ending inventory. However, the average cost formula will assign a cost to the ending inventory that reflects the average cost of all inventory purchased throughout the period, which will be lower due to the falling prices.

In Periods of Falling Prices, FIFO Will Result in the Same