Question

Which of the following inventory cost flow methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?

1) FIFO (First-In, First-Out)
2) LIFO (Last-In, First-Out)
3) Weighted Average Cost
4) Specific Identification

Answer 1

FIFO (First-In, First-Out) is the appropriate inventory cost flow method for a business with a relatively small number of unique, high-cost items.

Step-by-step explanation:

FIFO (First-In, First-Out) is the appropriate inventory cost flow method for a business with a relatively small number of unique, high-cost items. This method assumes that the first inventory items purchased will be the first ones sold.

For example, let's say a business sells artwork, and each piece is unique and expensive. Using FIFO, the business would first sell the oldest piece of artwork in its inventory.

This method is suitable for businesses that want to prioritize selling their oldest inventory to prevent the risk of obsolescence or spoilage, especially when dealing with items that have a limited shelf life.