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      Question

      What is the appropriate method for calculating the cost

      of inventory when there are significant fluctuations in purchase prices?
      A LIFO method Correct Answer Incorrect Answer
      B FIFO method Correct Answer Incorrect Answer
      C Specific identification method Correct Answer Incorrect Answer
      D Weighted average cost method Correct Answer Incorrect Answer
      E None of these Correct Answer Incorrect Answer

      Solution

      Under the weighted average cost method, the cost of each unit of inventory is calculated as the total cost of all units purchased divided by the total number of units purchased. This method takes into account the varying purchase prices of inventory and calculates a weighted average cost for all units in inventory.

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