7SE_1 - Horngren'S Financial And Managerial Accounting

Question

Question: Refer to Short Exercises S6-4 through S6-6. After completing those exercises, answer the following questions:

 

Requirements

1. Which inventory costing method produced the lowest cost of goods sold?

Step-by-Step Solution

Answer

FIFO method produces the lowest Cost of goods sold.

Step-by-Step-Solution Step1: COGS computed under different conditions

The inventory methods used in the previous exercises used inventory methods namely – FIFO, LIFO, and Weighted Average Cost

 

The COGS under each of the case are as follow –

FIFO:$2,000

LIFO:$2,312

Weighted Average:$2,108

Step 2: Lowest COGS

As can be seen from the above figures, the lowest COGS amounts to $2,000. This lowest cost of goods sold is the result of the FIFO method which values the issued stocks on the historical prices.