The Inventory Cost Formula That Results in the Inventory Value

question 6

Multiple Choice

The inventory cost formula that results in the inventory value on the statement of financial position that is closest to its actual cost is

• A) FIFO.
• B) specific identification.
• C) average cost.
• D) either FIFO or average cost.

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Definitions:

Activity-Based Costing

Activity-based costing is a method in accounting that assigns costs to products and services based on the resources they consume and the activities undertaken to produce them.

Period Costs

Expenses that are incurred by a business during a specific time period but are not directly tied to the production of goods and are reported immediately in the company's income statement.

Factory Overhead Allocation

The process of distributing indirect manufacturing costs, such as utilities and rent, across various products based on a predetermined rate or method.

Service Companies

Businesses that provide services to consumers or other businesses rather than producing goods.