Question

Operating income can differ materially between the results for the weighted-average and FIFO methods when:

a) direct materials or conversion costs per unit vary significantly from period to period.
b) the physical inventory levels of work in process are large relative to the total number of units transferred out.
c) Neither of these answers is correct.
d) Both of these answers are correct.

Answer 1

The answer is d .Both of the options a and b are correct

When the direct materials or conversion costs per unit vary significantly from period to period and the physical inventory levels of work in process are large relative to the total number of units transferred out using both methods ,the operating income will vary

Step-by-step explanation:

Weighted average method Calculates cost per equivalent unit of all work done to date not considering the accounting period and assigns this cost to equivalent units completed and transferred out of the process and to equivalent units in ending work-in-process inventory.

Fifo ..First in first out

Assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new units, and finally to units in ending work-in-process inventory.

Answer 2

d) Both of these answers are correct.

Step-by-step explanation:

Base on the scenario been described in the question, Operating income can differ materially between the results for the weighted-average and FIFO methods when the physical inventory levels of work in process are large relative to the total number of units transferred out and direct materials or conversion costs per unit vary significantly from period to period.