JAMB Accounts Principles of Accounts 2015 Paper

Concept:The pricing method that gives a cost which remains reliable in both rising and falling markets is the average method.Explanation:The average method calculates the total cost of all goods available for sale. This total cost is divided by the total number of units available. That is, $$\text{Average cost per unit} = \frac{\text{Total cost of goods available}}{\text{Total number of units available}}$$ In a rising price situation, this average blends the old lower prices with the new higher prices. In a falling price situation, it blends the old higher prices with the new lower prices. Therefore, the average method is not biased towards recent or old prices. FIFO follows the oldest prices, while standard price uses a fixed price, so both are less flexible.Answer:Average method (Option B).