CHAPTER 8 (PART II) – REPORTING AND INTERPRETING COST OF
GOODS SOLD AND INVENTORY
Three generally accepted inventory costing methods:
1. Specific identification
2. First-in, first-out (FIFO)
3. Weighted average
Specific identification method: Identifies the cost of the specific item was sold.
The choice of an inventory costing method is NOT based on the physical flow of
goods on and off the shelves.
FIFO: Assumes that the oldest units (the first costs in) are the first units sold, and the last
goods purchased are left in ending inventory.
Perpetual inventory system COGS calculated throughout accounting period.
Periodic inventory system COGS calculated once at end of accounting period.
Weighted-average cost method: Uses the weighted-average unit cost of the goods
available for sale for both cost of goods sold and ending inventory.
Number of monitors x unit cost = Total cost
Average cost = Cost of goods available for sale
Number of monitors available for sale
Called moving weighted-average cost method. See page 419 for example.
Three inventory costing methods differ only in the portion of goods available for sale
allocated to COGS vers