XYZ Inc. is a large manufacturing company that uses the weighted average method for inventory valuation. During the current financial year, the company experienced a significant increase in its inventory levels due to a surge in production and raw material purchases. At the end of the year, the company's management noticed discrepancies between the physical count and the recorded inventory levels in the books. Which of the following statements regarding the weighted average method for inventory valuation and its impact on financial statements is correct? A) The weighted average method assigns the same cost to each unit of inventory, regardless of when it was purchased, resulting in a smoother cost flow compared to other inventory valuation methods. B) When using the weighted average method, the ending inventory value is based on the most recent purchases made during the year, resulting in a higher cost of goods sold (COGS) and lower gross profit. C) The weighted average method is more suitable for companies with a stable and consistent inventory turnover rate as it assumes a constant flow of goods at a uniform cost. D) Under the weighted average method, the inventory is valued at the cost of the oldest purchases, which ensures that the inventory reflects the actual physical count. E) The weighted average method is only applicable to perpetual inventory systems and cannot be used in periodic inventory system
Question:
XYZ Inc. is a large manufacturing company that uses the weighted average method for
Which of the following statements regarding the weighted average method for inventory valuation and its impact on financial statements is correct?
A) The weighted average method assigns the same cost to each unit of inventory, regardless of when it was purchased, resulting in a smoother cost flow compared to other inventory valuation methods.
B) When using the weighted average method, the ending inventory value is based on the most recent purchases made during the year, resulting in a higher cost of goods sold (COGS) and lower gross profit.
C) The weighted average method is more suitable for companies with a stable and consistent inventory turnover rate as it assumes a constant flow of goods at a uniform cost.
D) Under the weighted average method, the inventory is valued at the cost of the oldest purchases, which ensures that the inventory reflects the actual physical count.
E) The weighted average method is only applicable to perpetual inventory systems and cannot be used in periodic inventory systems.
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