Stock Valuation
(Inventory Valuation).
Formula
FIFO Cost of Sales = Oldest stock prices used first; AVCO = Total Cost / Total Units
Real World
During the 2021–22 global chip shortage, semiconductor manufacturers using FIFO reported lower cost of sales because older, cheaper chips were valued first, boosting reported profit figures.
Exam Focus
When comparing FIFO vs AVCO, always state the impact on both profit AND balance sheet value — answers covering only one side lose marks.
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