In calculating gross profits, a firm utilizing FIFO inventory accounting would assume that
A) all sales were from the current production.
B) all sales were from the beginning inventory.
C) sales were from the beginning inventory until it was depleted, and then sales were from the current production.
D) all sales were for cash.

Question

Quizplus · Accepted Answer

FIFO (First-In, First-Out) inventory accounting assumes that the first units of inventory purchased or produced are the first ones sold. This means that the cost of goods sold (COGS) is based on the cost of the oldest units in inventory, which are usually the units that were purchased or produced at the lowest price.

In terms of calculating gross profits, FIFO accounting assumes that sales are made from the oldest units in inventory until they are depleted, and then sales are made from the current production. This means that the COGS will be based on the oldest units in inventory, while the revenue will be based on the selling price of the most recent units produced or purchased.

Therefore, the correct answer is C.

In Calculating Gross Profits, a Firm Utilizing FIFO Inventory Accounting