Dear tutor,
Can you please explain why with the AVCO method the valuation of inventory rarely reflects the actual purchase price of the material?
I think LIFO should be the one that has that problem because the remaining inventory has the price of the oldest purchases. Therefore, it rarely reflects the actual purchase price, whereas AVCO gives a better valuation compared to LIFO.
Thank you in advance for your help!
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AVCO vs LIFO
17d ago#1It is because AVCO is just an average of the different prices over the period which is not going to be the actual price paid for any of it (unless the price had remained the same throughout).
Both LIFO and FIFO give the actual price that was paid for the inventory that remains (although obviously based on different assumptions as to whether the inventory remaining is of old or recent purchases).
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