Two Companies Report the Same Cost of Goods Available for Sale

question 72

Multiple Choice

Two companies report the same cost of goods available for sale but each employs a different inventory cost formula.If the price of goods has increased during the period, then the company using

• A)FIFO will report lower ending inventory.
• B)Average cost will report lower ending inventory.
• C)FIFO will report higher cost of goods sold.
• D)Average cost will report lower cost of goods sold.

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Definitions:

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the scale of the operation increases.

Exclusive Franchise

A business arrangement granting a single entity the right to market a company's goods or services within a specified territory.

Deregulation

The process of reducing or eliminating government controls or restrictions on industries to promote efficiency and competition.

Industrial Regulation

Policies and rules implemented by governments to control or manage the activities, standards, and behaviors of industries and their participants.