What type of stock valuation would a vegetable seller adopt in valuing it's product?
Answer Details
A vegetable seller would typically adopt the FIFO (first-in, first-out) stock valuation method in valuing its products.
The FIFO method assumes that the first items (or vegetables) that are purchased or produced are the first ones to be sold. In other words, the oldest inventory is sold first, while the newest inventory remains in stock.
For a vegetable seller, this method makes sense because the vegetables are perishable goods that have a limited shelf life. Using the FIFO method ensures that the older vegetables are sold first, reducing the risk of spoilage and waste.
Under the FIFO method, the cost of goods sold is calculated based on the cost of the oldest inventory that was sold during the accounting period. The cost of the remaining inventory is based on the cost of the most recent inventory purchases.
For example, if a vegetable seller purchased 100 units of carrots at $1 per unit, and then later purchased 100 units at $1.50 per unit, the cost of the first 100 units sold would be $1 each, while the cost of the remaining 100 units in inventory would be $1.50 each.
Overall, the FIFO method provides a good representation of the cost of goods sold and the value of the remaining inventory for a vegetable seller.