Question

If a company's cost to purchase inventory is increasing over time, which invenory costing method generally will rosult in an ending inventory value apptoximating current cost? FIFO LFO Average cost Specific identification It a companys cost to purchase imventory is ihereasing over time, which invontory oosting mothod generaly will result in an ending iventory value approximatig cirtent 4 I Joints cost? FIFO LIFO Average cost Specific ioentification Entity B is poying more for merchandise sndfor recelving lens in sales price for merchandise than its competitors: If a company cost to purchase inventory id ncreasung over time, which iwentary costing method gonerally will result in an ending inventory value approximating current Jicicintis. cost? FIEO LIFO Auerage cost Specificidentifiation

Answer 1

In a scenario where inventory costs are rising, the FIFO method typically results in an ending inventory valuation that best approximates current costs, as it leaves the most recently purchased—and likely more expensive—items in ending inventory.

Step-by-step explanation:

If a company's cost to purchase inventory is increasing over time, the inventory costing method that generally will result in an ending inventory value approximating current cost is the First-In, First-Out (FIFO) method. Under FIFO, it is assumed that the first items added to inventory are the first ones to be sold. Hence, in a period of rising costs, the oldest and typically cheaper inventory is sold first, leaving the newest and more expensive inventory as ending inventory. This means that the value of the ending inventory is closer to current market prices. On the other hand, the Last-In, First-Out (LIFO) method assumes that the last items purchased are the first to be sold. In a period of rising costs, this would result in selling the most expensive inventory first, and the ending inventory would consist of the older, less expensive items, which means the LIFO ending inventory would not approximate current costs as well as FIFO.

The Average Cost method smooths out the effects of price changes over time by taking the weighted average of the costs of goods available for sale. This does fluctuate with changes in costs but does not necessarily represent current costs as accurately as FIFO during periods of inflation. The Specific Identification method tracks the cost of each individual item in inventory. While this method can approximate current cost if the most recently purchased items are left in inventory, it's not generally used for businesses with a large number of identical items due to its complexity and is more suited for businesses with unique, high-cost items.