Problem 2 (10 Points) Below are statements describing inventory and cost flow me
ID: 2565480 • Letter: P
Question
Problem 2 (10 Points) Below are statements describing inventory and cost flow methods. Identify which method matches each description by writing the correct term on the space provided. You may use a term once, more than once or mot at all. Tenms Specific identification (SI) Weighted average (WA) Simple average (SA) Moving average (MA) First-in, first-out (FIFO) Last-in, first-out (LIFO) Dollar-value LIFO (SVLIFO During a period of rising prices, this method results in a higher cost of goods sold The cost of goods sold balance is the same whether a perpetual or periodic inventory system is used Method that is appropriate when there are a relatively small number of significant dollar value items in inventory Average cost must be calculated each time additional inventory is purchased. Method that averages the cost of all items on hand and purchased during the period. This method results in the highest ending inventory in a period of rising prices. Method that uses a price index to measure changes in inventory. If used for tax purposes, this method must also be used for financial reporting purposes. This method most closely matches the physical flow of inventory.Explanation / Answer
1. LIFO - as during period of rising prices, last in invetory will have higher prices as compared to initial inventories. And as it goes out first, the COGS would increase.
2. FIFO - as initial inventory prices go into COGS first, so you use periodic or perpetual, both will give you same results
3. Moving average
4. Weighted average: as it's weighted average, so you need to redo the average when new items are added as per the new weights .
5. Simple average - that's a simple average of all items that you have
6. FIFO - As first in would be at lower prices and would also go out first, so COGS would be lower. But inventory coming later would be higher priced, and thus inventory would be high.
7.Dollar value LIFO : you do a price adjustment based on inflation between this year and previous year to find the actual rise/decline in inventory
8. Weighted average
9. Specific identification as you will have actual cost for each of the items that are actually moving