Share
Explore BrainMass

Contrast inventory costing methods LIFO FIFO

Compare and contrast two of the following inventory valuation methods: first in - first out (FIFO), last in - first out (LIFO), or weighted average. Explain the benefits of each inventory valuation method you selected and how the inventory is valued.

Playing devil's advocate, if a Best Buy type company were to use average cost wouldn't this drastically lower the value of their inventory? It would be difficult to apply the average cost when the technology is always changing. For example, let's use TV's, how would you apply the average cost when you may have an HD TV vs a plasma TV vs a simple flat screen. Thoughts?

Solution Preview

Acct 541 Accounting Theory and Research

Compare and contrast two of the following inventory valuation methods: FIFO, LIFO, or weighted average. Explain the benefits of each inventory valuation method you selected and how the inventory is valued.

FIFO uses the oldest costs in COGS while LIFO uses the newest costs in COGS. Weighted average uses an average for the period and so each unit for the period carries the same costs, a blend of new and old costs.

The benefit of FIFO is that you report the best profits in periods of rising prices and you balance sheet contains the most current pricing ...

Solution Summary

Your response is 227 words and discusses the advantages of each of the three methods and how a change from FIFO to average cost would impact Best Buy, including the challenges of implementing it if they wished to try it.

$2.19