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  • Exam Code: E3
  • Exam Name: E3 Strategic Management
  • Version: V12.35
  • Q & A: 78 Questions and Answers

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NEW QUESTION: 1
The cost of materials has risen steadily over the year. The entity uses its newest materials first when removing items from inventory. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit, all other variables held constant?
A. First-in-first-out FIFO
B. Weighted average
C. Last-in-first-out LIFO
D. Specific identification
Answer: A
Explanation:
The first-in-first-out-FIFO method assumes that the oldest and hence least costly units are used first, and the newest and most costly items remain in inventory. This method will result in the highest inventory balance if costs rise steadily during the accounting period.
Accordingly FIFO results in the lowest cost of goods sold and the highest profit.

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