Discuss the three primary methods of assessing ending inventory value, and what each method means to...

Discuss the three primary methods of assessing ending inventory value, and what each method means to the business.

Expert Solution

Three methods of assessing ending inventory value are:

1) First-in, First-out

2)Last-in,First-out

3) Average cost

Under First-in,First-out, cost of goods is valued upon the cost of material bought

earliest in the period, while the cost of ending inventory is valued upon the cost of

material bought later in the year. First-in, first-out method yield a strong balance sheet

report because assets carry higher value under this method.

Under Last-in, First-out,cost of goods is valued upon the cost of material bought

towards end of period, while the cost of ending inventory is valued upon the cost of

material bought earlier in the year. Presently this method is hardly practicised by

business since inventories are rarely sold and they become old and loss the value.

Under average cost method, cost of goods sold and ending inventory both are based

the average cost of units purchased during the period, This is used in business when

inventory turns over rapidly.

ekkarill92 answered 2 years ago

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