If Inventory Costs Are Rising Which Method Gives the Highest

question 18

Multiple Choice

If inventory costs are rising which method gives the highest profit?

• A) Weighted average.
• B) FIFO.
• C) LIFO.
• D) It is not possible to calculate which method gives the highest profit.

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Definitions:

Absorption Costing

A methodology for product costing that comprehensively adds up the costs of direct materials, direct labor, and both fixed and variable manufacturing overheads.

Variable Costing

An accounting method that only includes variable costs (costs that change with production levels) in the cost of goods sold and treatment of fixed costs.

Production Costs

The total expenses incurred in the manufacture of products, including costs related to labor, raw materials, and overhead.

Variable Production Costs

Expenses that fluctuate with the level of output or production, including costs like raw materials and direct labor.