Which Inventory Costing Method Most Closely Approximates Current Cost for Each

question 69

Multiple Choice

Which inventory costing method most closely approximates current cost for each of the following:

$\begin{array}{lcc}\text { Ending Inventory }&\text { Cost of Goods Sold }\\\end{array}$

• A)\(\begin{array}{lcc}\text { } & \text { FIFO } & \text {\quad\quad\quad\quad\quad FIFO } \\\end{array}\)
• B)\(\begin{array}{lcc}\text { } & \text { FIFO } & \text {\quad\quad\quad\quad Average-cost } \\\end{array}\)
• C)\(\begin{array}{lcc}\text { } & \text { Average-cost } & \text {\quad\quad FIFO } \\\end{array}\)
• D)\(\begin{array}{lcc}\text { } & \text { Average-cost } & \text {\quad Average-cost }
• \end{array}\)

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Definitions:

Perfect Competition

A market structure characterized by a large number of small firms, homogeneous products, free entry and exit, and perfect information, leading to firms being price takers.

Diminishing Marginal Returns

A principle stating that as more of a variable input is added to a fixed input, the additional output from each new unit of input will eventually decrease.

Profit-Maximizing Output

The level of production at which a firm achieves the highest possible profit, where marginal cost equals marginal revenue.

Sergei's Profit

A hypothetical measure of earnings named for an individual, illustrating the net gain after subtracting expenses from revenue.