Problem 2 (10 Points) Below are statements describing inventory and cost flow me
ID: 2565534 • 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 not at all. Terms Specific identification (SD) 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 tems in inventory Average cost must be calculated each time additional inventory is purchased. Method that averages the cost of all iems on hand and purchased during the period. his method results in the highest ending inventory in a period of rising prices. ethod that uses a price index to measure changes in inventory. used for tax purposes, this method must also be used for financial reporting purposes. s method most closely matches the physical flow of inventoryExplanation / Answer
answer will be as follows for every question -
1. LIFO - As higher value item will be considered in COGS.
2. FIFO - COGS will be the same in both condition.
3. specific identification - it can be used when items are less otherwise it will become hectic for you. No doubt that it absolutely correct method to calculate COGS and Ending inventory but impractical if you have large inventory level.
4 . Weighted Avg. Cost & Moving Avg.- To calculate Weighted Avg. cost = (cost of balance inventory + purcahse invenory * purchase cost per unit) / (balance inventory + purcahse inventory)
every time inventory cost will be new in purchase.
5. Weighted Avg. - reason will be same as above.
6. FIFO - as lower value items will become part of COGS due to First In First Out and latest and higher value item will become part of inventory cost.
7. Dollar value LIFO - as name suggest that it depends on dollar price.
8. FIFO - In IAS this method is the most convinient for financial reporting purpose.
9. Specific Identification
In case of any clarification required please comment.