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 FIFO rather than the Weighted-Average method?
A) A company produces a bleach chemical, so FIFO will be their best option.
B) FIFO is considered a simpler system to implement.
C) FIFO is less time-consuming and less expensive than the Weighted-Average method.
D) FIFO is more accurate than the Weighted-Average method.

Question

Quizplus · Accepted Answer

This question requires that familiarity with the differences between the features of the FIFO and Weighted-Average methods. Choice D is the correct choice as it is the only choice to accurately identify an appropriate and accurate rationale for selecting the FIFO method over the Weighted-Average method. FIFO is considered more accurate and this results in it also being more time-consuming and more expensive.

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