3.5 - Inventory Costing FIFO LIFO etc - TOPIC 3.5 INVENTORY...

This preview shows page 1 - 2 out of 5 pages.

TOPIC 3.5INVENTORY COSTING: FIFO, LIFO, WEIGHTED AVERAGELearning Outcomes: At the end of this topic, student should be able to:Distinguish among the three costing methods: FIFO, LIFO and Weighted AverageDetermine the impact of each method on the amount of Ending Inventory, Cost of Goods Sold, and Net Income when prices are rising (inflationary period) and when prices are falling (deflationary period).Methods of Costing Inventories:1.Specific Identification Method. Goods sold are identified as coming from specific items purchased. It may be more appropriate to use when the units are costly and can easily be distinguished (for example, expensive jewelry). In retail businesses, where so many items are identical to one another (as in the case of can goods), specific identification is not practical to use. The method may be too costly to operate due to the need of identifying which unit was sold. The amount of profit can be manipulated by choosing a lower of higher unit cost for the goods sold depending on whether the objective is to have a higher or lower profit.2.Artificial (not based on the actual physical flow of the goods) Cost Flow Assumptions:

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture