When Prices Are Constant, Which of the Following Inventory Cost

question 71

Multiple Choice

When prices are constant, which of the following inventory cost formulas will lead to the lowest cost of goods sold figure?

• A) FIFO
• B) Specific Identification
• C) Average
• D) When prices are constant, all cost determination methods will yield the same cost of goods sold figure.

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Definitions:

Money Rate

Typically refers to the interest rate, which is the cost of borrowing money, or the return on investing money, expressed as a percentage.

Real Rate

The interest rate adjusted for inflation, reflecting the real cost of funds to the borrower and the real yield to the lender.

Inflationary Premium

The part of the total interest rate that represents compensation to the lender for the expected loss of purchasing power due to inflation.

Investments

Investments refer to the allocation of money into assets with the expectation of generating income or profit in the future.