Inventory Valuation Methods (FIFO, LIFO) - Problem Set MCQ & Objective Questions
Understanding Inventory Valuation Methods, specifically FIFO (First In, First Out) and LIFO (Last In, First Out), is crucial for students preparing for school and competitive exams. This problem set focuses on MCQs and objective questions that enhance your grasp of these concepts, ultimately aiding in better exam performance. Practicing these questions not only solidifies your knowledge but also equips you with the skills to tackle important questions effectively.
What You Will Practise Here
Key definitions of FIFO and LIFO methods
Calculation of inventory values using FIFO and LIFO
Impact of inventory valuation on financial statements
Comparison of FIFO and LIFO in different scenarios
Common formulas used in inventory valuation
Real-world applications of FIFO and LIFO methods
Understanding the implications of inventory valuation choices
Exam Relevance
The topic of Inventory Valuation Methods frequently appears in CBSE, State Boards, and various competitive exams like NEET and JEE. Students can expect questions that require them to apply these methods in practical scenarios, often involving calculations and comparisons. Familiarity with common question patterns, such as identifying the correct method based on given data, is essential for success.
Common Mistakes Students Make
Confusing the definitions of FIFO and LIFO
Incorrectly calculating inventory values due to formula errors
Overlooking the impact of inventory valuation on profit margins
Failing to apply the correct method based on the context of the question
FAQs
Question: What is the main difference between FIFO and LIFO? Answer: FIFO assumes that the oldest inventory items are sold first, while LIFO assumes that the newest items are sold first.
Question: How do FIFO and LIFO affect financial statements? Answer: FIFO typically results in higher profits during inflation, while LIFO can reduce tax liabilities by showing lower profits.
Now is the time to enhance your understanding of Inventory Valuation Methods! Dive into our practice MCQs and test your knowledge to ensure you are well-prepared for your exams. Start solving today and boost your confidence!
Q. If a company has 100 units of inventory purchased at $10 each and 100 units purchased at $15 each, what is the cost of goods sold using LIFO if 150 units are sold?
A.
$1,500
B.
$1,750
C.
$1,600
D.
$1,650
Solution
Using LIFO, the last 100 units sold are at $15 each and the next 50 units are at $10 each, resulting in a cost of goods sold of (100 * $15) + (50 * $10) = $1,750.
Q. If a company has 100 units of inventory purchased at $10 each and 50 units purchased at $15 each, what is the value of inventory under FIFO if 75 units are sold?
A.
$1,000
B.
$1,125
C.
$1,250
D.
$1,500
Solution
Under FIFO, the first 75 units sold would be from the first purchase, totaling $1,000 (100 units at $10) + $125 (25 units at $15).
Q. Which method would provide the most accurate matching of costs with revenues in a period of price fluctuation?
A.
FIFO
B.
LIFO
C.
Weighted Average
D.
Specific Identification
Solution
The Weighted Average method provides a more accurate matching of costs with revenues during price fluctuations by averaging the costs of all inventory.
