Question

When might it be beneficial for a company to use the FIFO method? When is the weighted-average method more practical?

Short answer

The FIFO method is beneficial when the cost changes significantly, and the weighted average method is beneficial when the cost is not changing significantly.

Step-by-step solution

Step-by-Step Solution:Step 1: Inventory Valuation Method

Inventory valuation can be done by First in, first out, last-in, first-out, or the weighted average method. Each method gives a different inventory valuation. Generally, most companies use the FIFO method.

The situation in which the FIFO method is beneficial

The FIFO method is more useful in companies working in an industry where cost changes significantly.

The situation in which the weighted average method is beneficial

The weighted average method is beneficial when the business operates in an industry that does not experience significant cost change.