Cunningham Furniture doesn\'t expect prices to change dramatically and wants to

Question

Cunningham Furniture doesn't expect prices to change dramatically and wants to use a method that averages price changes. 1. Which inventory method would best meet Cunningham Furniture's goal? 2. What if Cunningham Furniture wanted to expense out the newer purchases of goods instead? Which inventory method would best meet that need? 1. Which inventory method would best meet Cunningham Furniture's goal? The inventory costing method that averages price changes is the: O A. Last-in,first-out (LIFO) cost method O B. Specific-unit-cost method O c. First-in, first-out (FIFO) cost method O D. Average cost method What if Cunningham Furniture wanted to expense out the newer purchases of goods instead? Which inventory method would best meet that need? The inventory costing method that expenses out the newer purchases of goods is the: 2. O A. Specific-unit-cost method O B. Last-in, first-out (LIFO) cost method O C. First-in, first-out (FIFO) cost method O D. Average cost method

Explanation / Answer

Solution: 1. Answer is D. Average cost method. Working Notes: The inventory costing method that averages price changes is the average cost method. Under average cost method , cost of inventory taken as the average cost of goods available for sale. 2. Answer is B. Last-in, first-out (LIFO) cost method. Working Notes: The inventory method that expenses out the newer purchases of goods is the Last-in, first-out (LIFO) cost method. Under LIFO cost method , latest used inventory cost will be the cost of latest inventory purchases. And hence, LIFO is the inventory method that expenses out the newer purchases of goods. Please feel free to ask if anything about above solution in comment section of the question.

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