Question

Inventory loss, what characteristic it upholds and why it happens:

A) FIFO, due to obsolescence
B) LIFO, due to theft
C) Weighted Average, due to spoilage
D) Specific Identification, due to damage

Answer 1

Inventory loss characteristic of 'Specific Identification, due to damage' refers to the loss incurred when individual items are tracked and identified, with the associated cost being tied directly to the damaged items.

Step-by-step explanation:

The question relates to the characteristic of inventory loss and why it happens under different inventory costing methods. The correct answer to the question is D) Specific Identification, due to damage. This inventory costing method involves identifying and tracking each specific item in the inventory. When items are specifically identified, inventory loss due to damage becomes evident because the cost associated with the damaged items is directly tied to their individual identification. Other methods, such as FIFO, LIFO, or Weighted Average, deal more with the cost flows of inventory rather than specific items, hence they are less likely to attribute losses specifically to damage. Obsolescence, theft, and spoilage can occur under any costing method, but Specific Identification is most associated with losses due to damage because of its unique tracking of individual items.