Comparison of Weighted Average Cost and FIFO Methods

question 59

Essay

Comparison of weighted average cost and FIFO methods
Company X and Company Y sell the same product. The cost of this product has been rising steadily throughout the year. Both companies reported the same profit for the year, although Company X used the first-in, first-out method of pricing inventory, while Company Y used the weighted average cost method.
(a) Which company's valuation of ending inventory in the statement of financial position is more likely to approximate replacement cost?
Company ______________________________
(b) Which company reports a cost of goods sold figure in the current year income statement that is more likely to reflect the replacement cost of the units sold?
Company ______________________________
(c) Which company is minimizing income taxes it must pay?
Company ______________________________
(d) Which company would have reported the higher profit for the year if both companies had used the same method of pricing inventory?
Company ______________________________

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Definitions:

Sum of Squares for Regression

The sum of squares for regression quantifies the variation explained by the regression model, comparing the fitted values against the mean of the dependent variable.

SSR

Stands for Sum of Squares due to Regression, which measures the variation explained by the regression line in the context of statistical analysis.

Simple Linear Regression

A statistical method for examining the linear relationship between two quantitative variables; one variable is used to predict the outcome of another.

Probabilistic Model Equation

A mathematical representation of a statistical model that incorporates randomness and accounts for the probability of various outcomes.