official interest rates 7. Chrysler Jeep Australia purchases vehicles from Chrys

Question

official interest rates 7. Chrysler Jeep Australia purchases vehicles from Chrysler Jeep USA using American dollars Chrysler Jeep Australia records the value of these vehicles purchased in the books of business in Australian dollars. Over the last 12 months the Australian dollar has appreciated significantly against the US dollar. Which inventory costing method gives the lowest cost of goods sold at the end of the period for Chrysler Jeep Australia? a. First-in, first-out b. Last-in, first-out c. First-out, first in d. Last out, first-in e. Weigted Averagex

Explanation / Answer

As the Australian dollar appreciates significantly the cost (in Australian dollar terms) will rise for Chrysler Jeep Australia.

Cost of goods sold = beginning inventory+purchases – ending inventory.

Now as the Australian dollar rises the purchases of new cars by Chrysler Jeep Australia will become more expensive. Thus the costs of goods sold will be minimized when the maximum cars are sold from the beginning inventory and not from the expensive purchases.

To sell the maximum cars from the beginning inventory is possible only in case of FIFO (first in first out).

Thus the answer is option “a” – first in, first out.

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