Which inventory valuation method involves standard costs with periodic adjustments?

• A. Standard cost with periodic adjustments.
• B. Cost-based without adjustments.
• C. FIFO with monthly adjustments.
• D. LIFO with quarterly increases.

Answer: (A)

Standard costing uses predetermined costs for inventory and cost of goods sold, and periodically records variances between actual costs and those standards. This approach values inventory at the standard cost while tracking price and usage differences in separate variance accounts, which are updated at regular intervals. When a period ends, you compare what actually happened with the standard amounts; any difference is captured as a variance and analyzed or adjusted. This differs from a purely cost-based method without adjustments, which wouldn’t revalue inventory for variances, and from methods like FIFO or LIFO that focus on the order of item flow rather than applying standard costs with periodic variance updates. For example, if the standard cost per unit is $10 and the actual cost is $11, you’d record a $1 per unit unfavorable variance while the inventory remains valued at the standard cost until the variance is settled. So the described method is standard cost with periodic adjustments.