What is the method of inventory costing that assumes the unit product costs should be determined separately for each period i the order in which the costs were incurred? I think it is "process cost system". Is that right?
No, the method of inventory costing that assumes the unit product costs should be determined separately for each period in the order in which the costs were incurred is called "FIFO" (First-In, First-Out). FIFO is a commonly used method in accounting for valuing inventory and calculating the cost of goods sold.
To understand why FIFO is used, let me explain the concept. In a FIFO system, it is assumed that the first items purchased or produced are the first ones sold. This means that the costs associated with the earliest inventory purchases are attributed to the units sold first, while the most recent costs are assigned to the inventory that remains on hand. It follows the logic that older inventory should be sold first before the newer inventory, which reflects their actual physical flow.
Using the FIFO method, the costs incurred in earlier periods are matched with revenue generated in those periods. As a result, the ending inventory is valued at the most recent costs. This can be advantageous during periods of inflation because the cost of replacing inventory tends to increase over time. FIFO reflects this by valuing the inventory at its higher replacement cost.
Therefore, the correct answer to your question is that the method of inventory costing you are referring to is "FIFO", not the "process cost system", which is a different concept altogether.