Identify the Inventory Valuation Method That Is Being Described for Each

question 46

Short Answer

Identify the inventory valuation method that is being described for each situation below. In all cases, assume a period of rising prices. Use the following to identify the inventory valuation method:
$$\begin{array} { | l | l | } \hline \text { FIFO } & \text { First in, first out } \\\hline \text { LIFO } & \text { Last in, first out } \\\hline \text { SI } & \text { Specific identification } \\\hline \text { WA } & \text { Weighted average } \\\hline\end{array}$$
a. The method that can only be used if each inventory item can be matched with a specific purchase and its invoice
b. The method that will cause the company to have the lowest income taxes
c. The method that will cause the company to have the lowest cost of goods sold
d. The method that will assign a value to inventory that approximates its current cost
e. The method that will tend to smooth out erratic changes in costs.

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Definitions:

Least-costly Combination

In production, using the mix of resources that minimizes cost while producing a given level of output.

Marginal Resource Cost

Marginal resource cost is the additional cost incurred by producing one more unit of a good or service.

Marginal Revenue Product

The extra income produced by the use of an additional unit of a resource, like labor or capital.

Total Output

The total quantity of goods or services produced by an economic entity in a given period.