Question

In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation similar to the first-in, first-out method is

a. average cost.
b. base stock.
c. joint cost.
d. prime cost.

Answer 1

The average cost method is similar to the FIFO method for inventory valuation in rapid turnover situations, as it smooths out price fluctuations and approximates FIFO results when prices are stable.

Step-by-step explanation:

In situations with rapid turnover, the inventory method that produces a balance sheet valuation similar to the first-in, first-out (FIFO) method is average cost. The average cost method smooths out price fluctuations over time, which can be beneficial in a rapid turnover environment by providing a steady cost per unit that approximates the FIFO valuation when prices are stable. This method involves adding up the cost of all units available for sale during the period and then dividing by the number of units to find the average cost per unit. This average total cost can then be applied to the units sold to determine the cost of goods sold and the ending inventory valuation.