Which stock valuation method values stock by the order in which it was purchased, oldest first?

Which stock valuation method values stock by the order in which it was purchased, oldest first?

• A. Weighted average cost
• B. First in, first out (FIFO)
• C. Last in, first out (LIFO)
• D. Specific identification

Answer: (B)

Understanding inventory costing relies on the cost-flow assumption used to allocate costs to goods sold and to ending inventory. The description that stock is valued in the order it was purchased, oldest first, points to First In, First Out (FIFO). With FIFO, the oldest costs are recognized in cost of goods sold as items are sold, and the remaining inventory is valued at the newer costs. This means ending inventory reflects current prices more closely, especially when prices are rising, since newer, higher costs stay in inventory. Other methods work differently: LIFO uses the most recent costs for cost of goods sold, weighted average blends costs across all units, and specific identification tracks exact items sold.

Understanding inventory costing relies on the cost-flow assumption used to allocate costs to goods sold and to ending inventory. The description that stock is valued in the order it was purchased, oldest first, points to First In, First Out (FIFO). With FIFO, the oldest costs are recognized in cost of goods sold as items are sold, and the remaining inventory is valued at the newer costs. This means ending inventory reflects current prices more closely, especially when prices are rising, since newer, higher costs stay in inventory. Other methods work differently: LIFO uses the most recent costs for cost of goods sold, weighted average blends costs across all units, and specific identification tracks exact items sold.