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What is the primary basis for inventory valuation under the FIFO method?

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Question: What is the primary basis for inventory valuation under the FIFO method?

Options:

  1. First In, First Out
  2. First In, Last Out
  3. Last In, First Out
  4. Weighted Average Cost

Correct Answer: First In, First Out

Solution: 

FIFO stands for First In, First Out, meaning the oldest inventory items are sold first.

What is the primary basis for inventory valuation under the FIFO method?

Practice Questions

Q1
What is the primary basis for inventory valuation under the FIFO method?
  1. First In, First Out
  2. First In, Last Out
  3. Last In, First Out
  4. Weighted Average Cost

Questions & Step-by-Step Solutions

What is the primary basis for inventory valuation under the FIFO method?
  • Step 1: Understand what FIFO means. FIFO stands for First In, First Out.
  • Step 2: Know that FIFO is a method used to value inventory.
  • Step 3: Realize that under FIFO, the oldest items in inventory are sold first.
  • Step 4: Recognize that this means the cost of the oldest items is used to calculate the cost of goods sold.
  • Step 5: Conclude that the primary basis for inventory valuation under FIFO is the order in which items are purchased and sold.
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