(Appendix 6A)All production costs have been steadily rising in the Donner Company for several periods,and the company maintains large work-in-process inventories.What is the Donner Company's cost per equivalent unit,as computed using the FIFO method?
A) The same as that computed under the weighted-average method.
B) Higher than that computed under the weighted-average method.
C) Lower than that computed under the weighted-average method.
D) It could be the lower than, the same as, or higher than that computed under the weighted-average method.

Question

Quizplus · Accepted Answer

Under the FIFO (First-In, First-Out) method, the costs of the earliest goods purchased or produced are the first to be recognized in determining cost of goods sold. If production costs have been steadily rising, the FIFO method will assign the lower costs of earlier periods to the cost of goods sold, leaving the higher recent costs in ending inventory. This results in a higher cost per equivalent unit for the current period's production compared to the weighted-average method, which averages the costs over the period.

(Appendix 6A)All Production Costs Have Been Steadily Rising in the Donner