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Inventory Methods: identical across all inventory items?

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Must the same company use the identical inventory accounting method across all decisions in its stock management in its future? Justify why or why not! Support your argument with financial accounting principles and concepts please.

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Solution Summary

Your tutorial is 428 words and three references and gives two examples, a picture frame company and a car dealer, to illustrate the business drivers of this decision.

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Companies are allowed to choose among cost flow methods for allocating the cost of inventory to Cost of Goods Sold and Ending Inventory (stock). Companies often choose the same inventory cost flow method for all their items, especially if those items are similar in nature. For instance, a picture frame manufacturer would like choose the same method for all picture frames. While the size and colors differ, they are basically the same items - wood pieces glued together into rectangles. Do they HAVE to use the same? No. But unless there is an advantage to using a different one, it is more trouble to have multiple methods.

When companies has diverse inventories, they may have business reason to choose different methods. For instance, car dealers generally prefer specific ID for the vehicles since they are very different from each other and can be tracked individually in the ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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