Purchase Solution

Inventory Valuation Methods Compared

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution
Solution Summary

This solution is comprised of a comparison of three methods of inventory valuation to determine the ending inventory and cost of goods sold using FIFO, LIFO, and average-cost with analysis. The detail step-by-step explanation of how the inventory is valued as well as the benefits of each method provides students with a clear understanding of the concepts.

Thank you for using BrainMass.com. Have a great day!

Solution Preview

Also see the attached MS Word document for properly formatted data.

Inventory Costing Methods

A company can keep track of its inventory in two ways, perpetual and periodic. In a perpetual inventory system, companies keep detailed records of the cost of each inventory purchase and sale. The records continuously, perpetually, show the inventory that should be on hand for every item.

In a periodic inventory system, companies do not keep detailed inventory records of the goods on hand throughout the period. Instead, they determine the cost of goods sold only at the end of the accounting period, that is, periodically. At that point, the company takes a physical inventory count to determine the cost of goods on hand.

To determine the cost of goods on hand at the beginning of the accounting period, the following steps are necessary:

1. Determine the cost of goods on hand at the beginning of the accounting period.
2. Add to it the cost of goods purchased.
3. Subtract the cost of goods on hand at the end of the accounting period.

No matter whether they are using a periodic or perpetual inventory system, all companies need to determine inventory quantities at the end of the accounting period. When using a perpetual system, companies take a physical inventory for two purposes: the first purpose is to check the accuracy of their perpetual inventory record, and the second is to determine the amount of inventory lost due to wasted raw materials, shoplifting, or employee theft.

Companies using a periodic inventory system must take a ...

Purchase this Solution
Free BrainMass Quizzes
Basics of corporate finance

These questions will test you on your knowledge of finance.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Introduction to Finance

This quiz test introductory finance topics.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

View More Free Quizzes
Related BrainMass Solutions

  • FIFO and LIFO

    FIFO, weighted average, and LIFO methods are often used instead of specific identification for inventory valuation purposes.

  • Rare Metals: Ratios under LIFO or FIFO, explain diffs, purchases

    Financial information is given assuming the use of the first-in, first-out (FIFO) method of inventory valuation and also the last-in, first-out (LIFO) method of inventory valuation.

  • Impact of differing inventory valuation methods

    If you compared two different companies that used two different valuation methods, how might the quality of the results differ? Also, comment on the difficulty in making comparisons between two firms that use different valuation methods.

  • This post addresses inventory valuation and net income.

    The solution provides a detailed explanation discussing how the choice of inventory valuation methods affect the amount of net income reported by a company.

  • Inventory Costing Methods

    Explain how to determine inventory valuation and the methods used to determine the cost of goods on hand. Explain how to determine inventory valuation and the methods used to determine the cost of goods on hand.

  • Specific identification for inventory Vs. FIFO, LIFO, WA

    This post compares the specific identification for inventory valuation to other methods of inventory valuation such as FIFO, LIFO and weighted average. (Approx 300 words)

  • Inventory Valuation and the Effect on Profit.

    Inventory valuation methods impact the valuation of inventory and the cost of goods sold. There by it affects the balance sheet, income statement and statement of cash flow.

  • Inventory Valuation

    Thanks The expert examines inventory valuation methods for costing.

  • Contrast inventory costing methods LIFO FIFO

    388720 Accounting Theory and Research: Contrast inventory methods for types of TVs Compare and contrast two of the following inventory valuation methods: first in - first out (FIFO), last in - first out (LIFO), or weighted average.

  • The Effects of LIFO Inventory Valuation

    Likewise, because lower-valued units will be in inventory, answer b) is wrong; if anything, the value of the inventory will be low compared to the units' current values.

View More Related Solutions