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When the prices of raw materials are rising which of the following statements is true?
(A) FIFO wil give lower profit figure than LIFO
(B) LIFO will give a lower closing inventory valuation than FIFO
(C) Under LIFO production costs will be lower than under FIFO
(D) Periodic weigtated average will give a lower closing inventory valuation than the cumulative average pricing methodSir answer is B. Please confirm me how statement D is incorrect? I was confused. I marked B but could not find any reason to cancel D out.
I think D is also correct: The question might have mixed up the two types of costing.
The periodic weighted average pricing method only recalculates the weighted average price at the end of each period, regardless of the inventory movements during the period
The cumulative weighted average pricing method recalculates the weighted average
price during a period i.e. if one or more purchases have been made.Cumulative weighted average: 1st unit costs 10, second costs 12. Average cost = 11. If one is sold the cost of the item remaining is 11. Third item bought for 15. Average cost of the 2 in stock = 13
Periodic weighted average: total purchases = 10 + 12 + 15 = 37. Average value of the two left in stock = 37/3 = 12.33 per unit
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