The primary purpose of an inventory flow assumption is to:
A) Increase inventory turnover.
B) Increase gross profit.
C) Determine which unit costs are assigned to inventory and which are assigned to the cost of goods sold.
D) Minimize taxable income during periods of rising prices.

Question

Quizplus · Accepted Answer

The primary purpose of an inventory flow assumption is to determine which unit costs are assigned to inventory and which are assigned to the cost of goods sold. This helps in accurately valuing the inventory on the balance sheet and determining the cost of goods sold on the income statement. It also helps in making strategic decisions related to pricing and inventory management. While inventory turnover and gross profit may be impacted by the choice of inventory flow assumption, they are not the primary purposes of using this method. Minimizing taxable income during periods of rising prices is not a correct purpose of using an inventory flow assumption.

The Primary Purpose of an Inventory Flow Assumption Is To