The Average Cost Method of Process Costing Differs from the FIFO

question 42

Multiple Choice

The average cost method of process costing differs from the FIFO method of process costing in that the average cost method:

• A)Requires that ending work in process inventory be stated in terms of equivalent units of production.
• B)Can be used under any cost-flow assumption.
• C)Does not consider the degree of completion of beginning work in process inventory when computing equivalent units of production.
• D)Considers the ending work in process inventory only partially complete.

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Definitions:

Dividend Yield

A metric showing the yearly dividend payouts of a company as a proportion of its stock price.

Gross Margin Ratio

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold; used to assess a company's financial health.

Return on Common Stockholders' Equity

A financial ratio that measures the profitability generated from the common stockholders' equity investment, indicating how efficiently equity capital is being utilized.

Total Asset Turnover

Total asset turnover measures how efficiently a company uses its assets to generate sales, calculated as sales divided by average total assets.