101 Concepts for the Level I Exam
Concept 51: Inventory Valuation Methods
The four inventory valuation methods are:
- The cost of the first item purchased is assumed to be the cost of the first item sold.
- Ending inventory is based on the cost of the most recent purchases.
- The cost of the last item purchased is assumed to be the cost of the first item sold.
- Ending inventory is based on the cost of the earliest purchases.
Weighted average cost
- Each item in the inventory is valued using an average cost of all items in the inventory.
- COGS and inventory values are between their FIFO and LIFO values.
- Each unit sold is matched with the unit’s actual cost.
- This method is usually used for items that are unique in nature, for example – jewelry.
All four methods are permitted under U.S. GAAP. However, IFRS does not permit LIFO method.