As a company decides between using the First-In, First-Out (FIFO) or Weighted-Average method for their process costing, a number of factors must be considered. Management should always ensure that they have taken the proper time to consider all factors as companies are urged to apply the same method from year to year and switching between methods later on will not likely be possible. Which of the following is a rationale for selecting the Weighted-Average rather than the FIFO method?
A) The Weighted-Average method is costlier than the FIFO method.
B) The Weighted-Average method is the best fit when individual units are easy to identify separately.
C) The Weighted-Average method is the best fit when individual units are impossible to identify separately.
D) The Weighted-Average method is the more accurate method but also takes more time.

Question

Quizplus · Accepted Answer

This question requires familiarity with the differences between the features of the FIFO and Weighted-Average methods. Choice C is the correct choice as it is the only choice to accurately identify an appropriate and accurate rationale for selecting Weighted-Average over FIFO. When the units are too difficult to identify separately, Weighted-Average would be the best choice.

As a Company Decides Between Using the First-In, First-Out (FIFO)