Asked by Mariam Jaser on May 12, 2024
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FIFO and LIFO are the two most common cost flow assumptions made in costing inventories. The amounts assigned to the same inventory items on hand may be different under each cost flow assumption. If a company has no beginning inventory explain the difference in ending inventory values under the FIFO and LIFO cost bases when the price of inventory items purchased during the period have been (1) increasing (2) decreasing and (3) remained constant.
FIFO
A method of inventory valuation where goods first purchased or produced are assumed to be sold or used first, standing for "First In, First Out".
LIFO
Last-In, First-Out (LIFO) is an inventory valuation method whereby the most recently produced or acquired items are sold, used, or disposed of first.
Cost Flow Assumptions
Methods used to assign costs to inventory and goods sold, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).
- Estimate the cost of sold goods and final inventory valuation through diverse inventory systems and costing strategies.
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Learning Objectives
- Estimate the cost of sold goods and final inventory valuation through diverse inventory systems and costing strategies.
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