Which inventory valuation method is most likely to reflect current market prices?
Practice Questions
1 question
Q1
Which inventory valuation method is most likely to reflect current market prices?
FIFO
LIFO
Weighted Average
Specific Identification
FIFO reflects current market prices better as it uses the most recent costs for inventory valuation.
Questions & Step-by-step Solutions
1 item
Q
Q: Which inventory valuation method is most likely to reflect current market prices?
Solution: FIFO reflects current market prices better as it uses the most recent costs for inventory valuation.
Steps: 5
Step 1: Understand what inventory valuation methods are. These are ways to calculate the value of the inventory a company has.
Step 2: Learn about FIFO (First In, First Out). This method assumes that the oldest inventory items are sold first.
Step 3: Recognize that FIFO uses the most recent costs of inventory for valuation, which means it reflects current market prices better.
Step 4: Compare FIFO with other methods like LIFO (Last In, First Out) and Weighted Average. LIFO uses older costs, while Weighted Average averages costs over time.
Step 5: Conclude that FIFO is the best method for reflecting current market prices because it values inventory based on the latest costs.
