Question

When there is a net increase in the physical quantity of inventory during a period, the use of ________ results in an additional layer of inventory.a. FIFO

b. LIFO
c. average cost

Answer 1

(B) LIFO

Step-by-step explanation:

LIFO accounting is a method used in managing inventory and financial matters.

LIFO stands for “Last-In, First-Out”.

This method of accounting assumes that the recently purchased inventory be sold first. It is a method used for cost flow assumption purposes in the cost of goods sold calculation.

Then, LIFO INVENTORY LAYER is a portion of LIFO inventory cost on a balance sheet.

The ending inventory in physical quantity will usually exceed the beginning inventory.

The LIFO cost flow assumption assigns to this increases in physical quantities a cost computed from the prices of the earliest purchases during the year.

The LIFO inventory then consists of layers, or slices, which typically consists of relatively small amounts of physical quantities from each of the past years when purchases in physical units exceeded sales in units.