Question

For what purpose does a C/O use LIFO, FIFO, or average cost?

A) To determine the proper valuation of each individual inventory item
B) To determine the quantity and selling price of inventory items sold
C) To determine the amount to assign to inventory items under a particular method
D) To parallel the physical flow of goods as they are sold

Answer 1

A C/O (cost of goods sold) uses LIFO, FIFO, or average cost to determine the proper valuation of each inventory item and the amount to assign to inventory items under a particular method.

Step-by-step explanation:

A C/O (cost of goods sold) uses LIFO (last in, first out), FIFO (first in, first out), or average cost to determine the proper valuation of each individual inventory item. These methods help in assigning a value to each item based on the order in which they were purchased or produced.

For example, LIFO assumes that the most recently purchased or produced items are the first to be sold, while FIFO assumes that the oldest items are sold first. Average cost, as the name suggests, calculates the average cost of all inventory items and assigns that value to each item during its sale.

The purpose of using these methods is to determine the amount to assign to inventory items under a particular method, which then affects the calculation of cost of goods sold and the value of remaining inventory.