Using the FIFO Method, the Earliest Purchases of Inventory Are

question 26

Multiple Choice

Using the FIFO method, the earliest purchases of inventory are assumed to be contained:

• A)on the balance sheet as part of ending inventory.
• B)on the income statement as part of cost of goods sold.
• C)equally split between the income statement and the balance sheet.
• D)majority on the income statement and minority on the balance sheet.

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Definitions:

Average Fixed Costs

The fixed costs of production (costs that do not change with the level of output) divided by the quantity of output produced, which decreases as production increases.

Total Variable Costs

The sum of all costs that vary with the level of output, such as materials and labor, excluding fixed costs like rent or salaries.

Total Costs

The sum of all expenses a business incurs to produce or sell its products or services, including fixed and variable costs.

Marginal Costs

The cost associated with producing one extra unit of a commodity, emphasizing the importance of scale in production.