Multiple Choice Quiz Inventory Methods

FIFO stands for "First-In, First-Out" and is an inventory costing method that assumes that the first items purchased or produced are the first ones to be sold or used. This means that the cost of goods sold is based on the oldest inventory in stock, while the ending inventory is based on the most recent purchases or production. This method is based on the assumption that costs should be charged against revenue in the order in which they were incurred, making it the correct answer for the given question.

LIFO stands for "last in, first out" and is an inventory costing method that assumes the most recent costs incurred are the first ones to be charged against revenue. This means that when calculating the cost of goods sold, the inventory items that were most recently purchased or produced are considered to be sold first. As a result, the older inventory items remain in the inventory until the most recent ones are depleted. LIFO is commonly used in situations where there is inflation, as it allows companies to match the higher costs of recently acquired inventory with the current higher selling prices.

FIFO (First-In, First-Out) method of costing assumes that the items purchased or produced first are the first ones to be sold. In a situation where the price level is steadily rising, using FIFO would result in lower cost of goods sold (COGS) because the older, lower-cost inventory is being sold first. This in turn would yield higher net income as the higher-priced inventory remains in the balance sheet. Therefore, FIFO is the method of costing that will yield the highest net income in this scenario.

The cost of the 35 units on hand at the end of the period is determined under the FIFO costing method. FIFO stands for "first-in, first-out," which means that the first units purchased are considered to be the first ones sold. In this case, the 35 units on hand at the end of the period were from the third purchase at a cost of P23 per unit. Therefore, the cost of the 35 units on hand is P23 per unit.

The cost of the 35 units on hand at the end of the period is determined using the LIFO (Last In, First Out) costing method. According to this method, the cost of the most recent purchases is assigned to the units sold first, and the cost of the older purchases is assigned to the units remaining on hand. In this case, the most recent purchase was 50 units at P23, which means the cost of the 35 units on hand would be 35 units multiplied by P23, resulting in a total cost of P805.