Question

I need the table actually broken down and explained in layman's terms so that I understand how to determine the cost assigned to ending inventory and to cost of goods sold using specific identification, Fifo, Lifo, and weighted average.

Answer 1

Hi Student,
There are various method which an organisation apply to value its inventory
Depending upon the structure of the organisation they apply different model
Like we take an example for different kind of inventory and in which industry it mostly applied
1. FIFO method: It denotes to first in first out. Like in case of the wallmart there are plenty of items available in the stores
	many kind of FMCG products. We take example of surf packet. Generally what happens when the store purchase new items in the store of that surf
	they would like that their old stock first out as it would be expire if they would not do like this. In this case what they are doing?
	They are moving out first those stocks which are old and then the new. Means they are applying the FIFO method
Cost of Goods sold=		Number of items sold * Cost assgined according to FIFO method
Inventory =		Number of items left * Cost assgined according to FIFO method
2. Weighted average Method: Generally in case of cement manufacturing industry what happens they use the chemical to manufacture the cement
		Chemical they use don’t care whethere the chemical is old or new. They mix up it all and then make the cement bags
		Whey they mix up all the chemical it would not be possible to identify which they have used and which is still in the inventory.
		So they apply the weighted average for the cost of goods sold and the inventory
Cost of Goods sold=		Number of items sold * Average of opening & closing value
Inventory =		Number of items left * Average of opening & closing value
3. LIFO Method: Last in first out. It generally happens in the agricultural industry like in case of the paddy
	Older the paddy the more value it would be fetch in the market
	So the company deals in the industry would try to sell the new product and retain the old product so that
	it can fetch the better value in the market for the old inventory
Cost of Goods sold=		Number of items sold * Cost assgined according to LIFO method
Inventory =		Number of items left * Cost assgined according to LIFO method