Question

All production costs have been steadily rising at Donner Company for several periods. In this environment, Donner Company’s cost of ending Work In Process inventory using the FIFO method would be: a. the same as that computed under the weighted average method. b. higher than that computed under the weighted average method. c. lower than that computed under the weighted average method.

Answer 1

Answer:

b. higher than that computed under the weighted average method.

Explanation:

FIFO uses inventory evaluation such that the ending inventory cosists of the most recent purchases. Therefore the ending inventory consists of only the highest priced units.

The weighted average method uses process in which all the units have been uniformly valued. Therefore the weighted average ending inventory consists of units priced lower than the FIFO ending inventory during constantly rising prices.

The weighted average inventory would consist of both low priced and high priced units that are averaged which automatically is lower than the most recent high priced units.