A-LevelAccountingPreparation of financial statements9706/12 · May/June 2022 · Q221 Mark
The cost of direct materials is increasing. What is the effect if a business uses first-in-first-out (FIFO) instead of average cost (AVCO) for inventory valuation in this situation?
Acost of sales: increases, profit for the year: decreases, closing inventory value: increases
Bcost of sales: increases, profit for the year: decreases, closing inventory value: decreases
Ccost of sales: decreases, profit for the year: increases, closing inventory value: decreases
Dcost of sales: decreases, profit for the year: increases, closing inventory value: increases
✓ Correct answer
D: cost of sales: decreases, profit for the year: increases, closing inventory value: increases
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