Which method of inventory valuation can affect the calculation of depreciation for manufacturing equipment?
Practice Questions
1 question
Q1
Which method of inventory valuation can affect the calculation of depreciation for manufacturing equipment?
FIFO
LIFO
Weighted average
Specific identification
The LIFO method can affect the calculation of depreciation for manufacturing equipment as it impacts the cost of goods sold and inventory valuation.
Questions & Step-by-step Solutions
1 item
Q
Q: Which method of inventory valuation can affect the calculation of depreciation for manufacturing equipment?
Solution: The LIFO method can affect the calculation of depreciation for manufacturing equipment as it impacts the cost of goods sold and inventory valuation.
Steps: 7
Step 1: Understand what inventory valuation means. It is how a company values its inventory for accounting purposes.
Step 2: Learn about different methods of inventory valuation. Common methods include FIFO (First In, First Out), LIFO (Last In, First Out), and Average Cost.
Step 3: Know that LIFO means the last items added to inventory are the first ones sold.
Step 4: Realize that LIFO can affect the cost of goods sold (COGS) because it changes which inventory costs are considered when calculating profits.
Step 5: Understand that COGS is important for calculating depreciation because it can influence the overall expenses of a company.
Step 6: Recognize that depreciation is the reduction in value of manufacturing equipment over time, and it is often calculated based on the company's expenses.
Step 7: Conclude that since LIFO affects COGS and overall expenses, it can indirectly impact the calculation of depreciation for manufacturing equipment.
