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Which inventory valuation method smooths out price fluctuations over time?
Which inventory valuation method smooths out price fluctuations over time?
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Q1
Which inventory valuation method smooths out price fluctuations over time?
FIFO
LIFO
Weighted Average
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The Weighted Average method smooths out price fluctuations by averaging the cost of all inventory items.
Questions & Step-by-step Solutions
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Q: Which inventory valuation method smooths out price fluctuations over time?
Solution:
The Weighted Average method smooths out price fluctuations by averaging the cost of all inventory items.
Steps: 5
Show Steps
Step 1: Understand that inventory valuation methods are ways to calculate the value of items in stock.
Step 2: Learn that prices of items can change over time due to various factors.
Step 3: Know that the Weighted Average method takes the total cost of all inventory items and divides it by the total number of items.
Step 4: Realize that by averaging the costs, this method reduces the impact of price changes, making the value of inventory more stable.
Step 5: Conclude that the Weighted Average method is effective for smoothing out price fluctuations.
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