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Use the Internet to research the annual report of at least three(3) merchandising companies. Determine the costing method (Last InFirst Out [LIFO], First In First Out [FIFO], and weighted average)that is used to record inventory. Next, watch C. Pence’s video:

Identify the primary benefits in using the costing method (LIFO,FIFO, and weighted average) that is used to record inventory.Explain at least three (3) reasons that would lead each of yourchosen companies to switch to a different costing method.

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Keith Leannon
Keith LeannonLv2
28 Sep 2019

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Use the Internet to research the annual report for at least two(2) merchandising companies. Identify the method that is used totrack inventory. Next, watch A. Mursau’s video: Identify theinventory tracking method that is used to record the cost of goodssold and ending inventory. Suggest the key risks inherent inrecording inventory in using both methods. Provide a rationale foryour response.

Merchandising Operations" Please respond to the following:

Use the Internet to research the annual report for at least two(2) merchandising companies. Identify the method that is used totrack inventory. Next, watch A. Mursau’s video:

https://www.youtube.com/watch?v=s9DQ7aAi-hs

Identify the inventory tracking method that is used to recordthe cost of goods sold and ending inventory. Suggest the key risksinherent in recording inventory in using both methods. Provide arationale for your response.



Yourcompany makes dice. In order to make dice they buy blocks of woodfrom various wood companies. Each pair of dice requires 2 blocks ofwood. This month the following occurred:


Allprior months inventory was used.


Purchase of 200 blocks at $.25 each for a total of $50


Purchase of 150 blocks at $.30 each for a total of $45


Purchase of 175 blocks at $ .28 each for a total of $49


Withthese purchases you have 525 blocks at a value of $144


Yousold 150 pairs of dice (meaning you used 300 blocks) for a $1.00 apair or $150


Options for determiningcost of goods sold/inventory


Option 1



Specific identification:You track the cost of every individual block purchased and when itis used you record the cost.



Pros: This is veryaccurate and you are matching revenue and the exactcost.



Cons: This may be veryexpensive to implement and track.



Option 2



First in First Out (FIFO):The blocks purchased first will be used first and the blockspurchased last will be used last. In this example you would haveused all the 200 blocks purchased at $.25 and 100 of the blockspurchased at $.30 meaning the cost would be $80 (50+30)



Pros: Easy to implementand track



Cons: In a period ofchanging prices your inventory could beovervalued/undervalued



Option 3



Last in First Out (LIFO):The blocks purchased last will be used first and the blockspurchased first will be used last. In this example you would haveused all the 175 blocks purchased at $.28 and 125 of the blockspurchased at $.30 meaning the cost would be $86.50(49+37.5)



Pros: Easy to implementand track



Cons: In a period of lowerprices your inventory could be overvalued. (For example if themarket price is now $.28 are the remaining blocks purchased at $.30still worth $7.50)



Option 4



Average costing: Use theaverage purchase price. In this example the average is .274(144/525) meaning the cost would be $82.2(.274*300).



Pros: Easy to implementand track



Cons:You need to keep recalculating the average.



There can be othermethods you can use. Which method do you think is best? Can youcome up with another method?

Answer should be detailed and MBA level


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