Question

Which cost flow assumption would be most appropriate when a relatively small number of costly, easily distinguishable items are sold?

a.FIFO.
b.Average.
c.Specific identification.
d.LIFO.

Answer 1

The most appropriate cost flow assumption for a small number of costly, easily distinguishable items is Specific Identification.

Step-by-step explanation:

The most appropriate cost flow assumption when a relatively small number of costly, easily distinguishable items are sold would be Specific Identification.

In Specific Identification, each item is individually identified and the cost of each item is recorded separately. This is useful in situations where items have unique characteristics or high value, allowing for precise matching of costs to revenue.

For example, in the luxury car industry, where each car has distinct features and may have different production costs, using Specific Identification would ensure that the cost of each car sold is accurately matched to the revenue generated.