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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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The costs of which units of inventory (oldest or newest) are allocated to ending inventory or cost of goods sold using the FIFO, LIFO, and average cost methods?

To determine

Concept introduction:

FIFO method:

FIFO Stands for First In First Out. Under this method, the units purchased first are assumed to be sold first and cost of goods sold is calculated accordingly. The ending inventory in the method includes the latest units purchased.

LIFO method:

LIFO Stands for Last In First Out. Under this method, the latest units purchased are assumed to be sold first and cost of goods sold is calculated accordingly. The ending inventory in the method includes the oldest units purchased.

Weighted Average method:

Under this method, the cost per unit of the inventory is calculated as weighted average cost per unit and the cost of goods sold and inventory is calculated with the help of weighted average cost per unit.

To indicate:

The oldest or newest cost which is allocated to the cost of goods sold and the inventory under each of the methods of inventory costing.

Explanation

The four inventory costing systems are explained as follows:

FIFO Stands for First In First Out. Under this method, the units purchased first are assumed to be sold first and cost of goods sold is calculated accordingly. The ending inventory in the method includes the latest units purchased.

LIFO Stands for Last In First Out. Under this method, the latest units purchased are assumed to be sold first and cost of goods sold is calculated accordingly...

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