Question

1.) FIFO
2.) LIFO
3.) WEIGHTED AVERAGE
4.) SPECIFIC ITEM
So your task to start this discussion is to define each AND give an example

Answer 1

Below is just few transactions, we will be using this master data for each eaxample

May 1 Purchase 20 units @ 20 p.u

May 3 Purachse 20 units @ 30 p.u

May 5 Sales 20 units

May 31 Ending Inventory 20 units

FIFO

Under FIFO method it is assumed that the inventory purchased first are sold first. At the time of increasing costs, use of FIFO will give us lower cost of goods sold, higher profits and lower tax savings.

Example:- So according to FIFO, it is assumed that sale on May 5th is actually the inventory purchased on May 1st at $20 per unit.

Cost of goods sold = $20 p.u

Ending Inventory = $30 p.u

LIFO

Under LIFO method it is assumed that the inventory purchased last are sold first. At the time of increasing costs, use of LIFO will give us higher cost of goods sold, lower profits and higher tax savings.

Example:- So according to LIFO, it is assumed that sale on May 5th is actually the inventory purchased on May 3rd at $30 per unit.

Cost of goods sold = $30 p.u

Ending Inventory = $20 p.u

Weighted Average

Under weighted average method, we find the average rate of inventory before each sale. This rate is used for calculating cost of goods sold or ending inventory etc.

Example:- So according to Weighted , it is assumed that sale on May 5th is actually @ ($20 x 20 units + $30 x 20 units) / 40 units = $25

Cost of goods sold = $25 p.u

Ending Inventory = $25 p.u

Specific Item

This method is used when you can differentiate each item on your inventory. Under this method each item in inventory has its own individual purchase price, so we just use that price to determine cost of goods sold or ending inventory

Example

May 1 Purchase Product A @ $5

May 3 Purchase Product B @ $6

May 5 Sale Product A

Cost of Goods sold for Product A = $5