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- 2011-7-11
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2#
发表于 2011-7-11 19:29
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Point 1 - FIFO provides higher profit margins than avg cost.
Think this way. First products in are cheaper in an inflationary environment than last products. FIFO is then clearly a lower COGS than LIFO. Average cost, well you are including costs that are not just from the beginning of the year, so it will be higher than FIFO and likely lower than LIFO. Don't complicate it with the currency yet.
Point 2 - In a subsidiary's depreciating currency Current Rate Method has higher profit margin
Temporal Method - My memory might be wrong but I believe that inventory is at historical exchange rates (someone please correct if wrong). So if we are using historical rates and the subsidiary currency is depreciating, it means that their historical rates were higher which means that COGS would be higher.
Current Method - You are using the average exchange rate for the year (again someone correct me if I am wrong because I am going from memory) which will like be more depreciated than temporal method because you had inventory from previous year that would be at the higher historical rate. Therefore, COGS is lower for current rate method.
In Summary FIFO has high profit margin and current rate has higher profit margin so your answer is C. |
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