Economics · Accountancy
A business uses the FIFO method for inventory valuation. During a period of constantly rising prices, the business decides to switch to the Weighted Average Cost (AVCO) method. What is the likely effect of this change on the Gross Profit Margin and the Closing Inventory value?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Gross Profit Margin: Increase; Closing Inventory Value: Increase
- 2Gross Profit Margin: Decrease; Closing Inventory Value: Decrease✓
- 3Gross Profit Margin: Increase; Closing Inventory Value: Decrease
- 4Gross Profit Margin: Decrease; Closing Inventory Value: Increase
Correct answer
Gross Profit Margin: Decrease; Closing Inventory Value: Decrease
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