When the Cost of Raw Materials Is Increasing, FIFO Accounting

question 76

Multiple Choice

When the cost of raw materials is increasing, FIFO accounting

• A) yields higher ending inventory values than LIFO.
• B) produces higher unit sales than using LIFO.
• C) yields higher cost of goods sold than LIFO.
• D) All of these.

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Definitions:

Ending Work In Process

The value of goods that are partially completed at the end of an accounting period, not yet ready for sale.

Equivalent Units

A concept in cost accounting used to express the amount of materials or labor in terms of fully completed units.

Conversion Costs

The combination of direct labor costs and manufacturing overhead costs that are incurred to convert raw materials into finished products.

Process Cost System

An accounting methodology used for homogenous products that accumulates costs in each process or department and assigns them to units of product evenly.