Question

The quantity purchased and purchase price is tracked​ through:

A.

specific identification method only.

B.

inventory layers.

C.

inventory charting.

D.

FIFO and LIFO only.

Answer 1

Answer is C. Inventory Layers (or inventory cost layers)

This method maintains the details of quantity purchased and purchase price. For every purchase/ receipt of material amde, a cost layer is recorded. This cost layer contains the complete details of receipt like quantity, price, invoice/ other document nos.

The meaning of other terms are as under:

Specific Identification method: Under this method, identification is made for each item sold and lying in inventory. That is, it is specifically identified that a particular sale has been made from which purchase. This method enables in accurate valuation of cost of goods sold and inventory valuation. However, it does not directly maintain purchase details. This method is put to use from sales point of view and not purchases.

FIFO and LIFO : Under FIFO method, inventory purchased first will be sold first and in LIFO, inventory purchased at last will be sold at last. This is also used to primarily ascertain what base to take for valuation of cost of goods sold and ending inventory.

Inventory Charting: This is basically done to manage the stock available. A chart is prepared for existing inventory and all the details like quantity, type, category, location, size, colour are mapped for each inventory item.