In a Period of Rising Prices,the Inventory Cost Allocation Method

question 24

Multiple Choice

In a period of rising prices,the inventory cost allocation method that tends to result in the lowest reported net income is

• A) LIFO.
• B) FIFO.
• C) moving average.
• D) weighted average.

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Definitions:

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or jobs, computed before the costs are incurred, based on estimated rather than actual costs.

Direct Labor-Hour

Direct labor-hour is a measure of the time workers spend on specific tasks directly involved in the production of goods.

Overapplied Overhead

A situation where the allocated overhead cost is more than the actual overhead cost incurred.

Underapplied Manufacturing Overhead

A situation where the actual manufacturing overhead costs are greater than the allocated overhead costs.