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Case Study: Yeti Motors Ltd.

Decent Essays
Firstly, specific identification method is a method of recording inventory costs for small number of expensive identifiable or easily distinguished items like cars or automobiles, furniture, handcraft, fine watches, and jewelry. Using this method, you can calculate the cost of goods sold and cost of ending inventory at the end of the accounting period. What to do first is to do a physical count of the remaining specific identifiable items which can easily be separated. Then the cost of each remaining item is tracked (that is unit cost) and multiplied by the number of it available in the inventory. The same is done for the other items and then the total cost of the items is calculated. This will give the cost of the ending or remaining inventory. The cost of goods sold is calculated by subtracting ending inventory from purchases.
Secondly, an example of a merchant that I will use to demonstrate a situation where it can use the specific identification method for recording inventory cost is Yeti Motors Ltd. Yeti Motors Ltd is part of Astro Holdings. It was established in 1985
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Let’s say, for the vehicle inventory, that there are 2 types of vehicles but 10 remaining vehicles in its inventory. The unit cost of each vehicle is $3,000 and $4,000. The number of the first type of vehicle is 6 and second type is 4. Then the total cost of the first type would be $18,000 and the second would be $16,000. Therefore, the cost of the ending inventory would be $34,000. So, if there were 100 (first type 60, and second type 40) vehicles in the inventory and 90 were sold, the cost of goods sold would be $306,000 [((60-6) X $3,000) plus ((40-4) X $4,000)].Or if the aggregate cost of all the vehicles is calculated or given, cost of goods sold would be purchases ($340,000) minus ending inventory ($34,000) which is $306,000. The first method can be used for verification process (Principlesofaccounting,
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