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:

Motility

The ability of an organism or fluid to move spontaneously and actively, consuming energy in the process.

Chorionic Villi Sampling

A prenatal test that involves taking a sample of the chorionic villi from the placenta to test for chromosomal abnormalities in the fetus.

Pregnancy

The condition or period of being pregnant, where an embryo or fetus develops inside the uterus over about forty weeks from the last menstrual period.

Weeks

Units of time consisting of seven days, commonly used to measure and organize time in many cultures around the world.