"Financial Report"：Inventories

C is correct. Under FIFO, the oldest units are sold first, thus for the six units sold FIFO, cost of sales is $3,850, as follows: 1 unit at $600 + 5 units at 650 = $3,850. 

A is incorrect. It is the cost of goods available for sale not the cost of goods sold: 1 unit at $600 + 5 units at 650 + 3 units at 680 = $5,890. 

B is incorrect. It used the $680 most recent cost for all 6,000 units sold: 6 × $680 = $4,080.

A is correct. In a period of rising prices, the most recently purchased units of inventory carry the highest cost. Under the LIFO approach, it is these high-cost units (those that are “l(fā)ast in”) that are transferred to the income statement (“first out”) as cost of goods sold. The lowest-cost units remain on the balance sheet as inventory. With a high cost of goods sold value (numerator) and a low inventory value (denominator), the inventory turnover ratio is highest under LIFO.

 B is incorrect. Under the weighted average approach, inventory is transferred to the income statement at a cost that falls somewhere between the lowest cost earlier purchases and the higher cost later purchases. The cost of goods sold value is thus higher than the FIFO value, but lower than the LIFO value. Similarly, the inventory value falls between that of LIFO and FIFO. The inventory turnover ratio also falls in between that of LIFO and FIFO. 

C is incorrect. Under the FIFO approach, the lower cost inventory purchased earlier is transferred to the income statement as cost of goods sold. The resulting cost of goods sold value is lower while inventory remains high. As a result, the inventory turnover ratio is low with a lower numerator and higher denominator.