Question

in periods of falling prices: a. fifo will result in a higher ending inventory valuation than the average cost formula. b. fifo will result in a higher cost of goods sold than the average cost formula. c. the average cost formula will result in a higher cost of goods sold than the fifo cost formula. d. the average cost formula will result in a lower ending inventory valuation than the fifo cost formula.

Answer 1

In periods of falling prices, the average cost formula will result in a higher cost of goods sold than the FIFO cost formula.

Step-by-step explanation:

In periods of falling prices, the average cost formula will result in a higher cost of goods sold than the FIFO (First-In, First-Out) cost formula.

This is because the average cost formula calculates the cost of goods sold by taking into account the average cost of all units in inventory, including both old and new inventory.

On the other hand, FIFO assumes that the oldest units are sold first, resulting in a lower cost of goods sold and a higher ending inventory valuation compared to the average cost formula.