FIFO Method in Accounting

Asset items that a company holds for sale in the ordinary course of business, or goods that it will use or consume in the production of goods to be sold.

To ensure accurate valuation of the investment in inventories, which is often the largest current asset of merchandising and manufacturing businesses.

As merchandise inventory, with the cost assigned to the unsold units.

<p>Raw Materials, Work in Process, and Finished Goods.</p> Signup and view all the answers

<p>The cost of raw material for unfinished units, direct labor cost, and a share of manufacturing overhead costs.</p> Signup and view all the answers

<p>Raw materials can be traced directly to the end product, while finished goods are ready for sale to customers.</p> Signup and view all the answers

<p>The ending inventory is close to current cost.</p> Signup and view all the answers

<p>FIFO method fails to match current costs against current revenues.</p> Signup and view all the answers

<p>LIFO results in inventories being recognized at amounts that may not reflect recent costs.</p> Signup and view all the answers

<p>Clearly explain the change and disclose its effect in the financial statements.</p> Signup and view all the answers

<p>To ensure accurate computation of net income.</p> Signup and view all the answers

<p>Charging oldest costs against more current revenues.</p> Signup and view all the answers

<p>LIFO</p> Signup and view all the answers

<p>To have comparable information about inventory when evaluating financial statements.</p> Signup and view all the answers

<p>Subjective estimates concerning the measurement and valuation of inventory.</p> Signup and view all the answers

<p>Due to cost flow assumptions like FIFO or weighted-average, as well as significant markdowns and losses.</p> Signup and view all the answers

<p>LCNRV, gross profit method, and retail inventory method.</p> Signup and view all the answers

<p>By providing insights into the company's cost structure and potential gross profit margins.</p> Signup and view all the answers

<p>Costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to the point of sale and in salable condition.</p> Signup and view all the answers

<ol> <li>The purchase price less purchase discount. 2. Import duties and other taxes. 3. Transportation costs. 4. Handling costs directly related to the acquisition of the goods.</li> </ol> Signup and view all the answers

<p>Direct materials, direct labor, and manufacturing overhead costs.</p> Signup and view all the answers

<p>Indirect materials, indirect labor, and various costs like depreciation, taxes, insurance, and heat and electricity.</p> Signup and view all the answers

<p>These costs are considered indirectly related to the cost of goods sold and are more directly associated with selling or administrative functions rather than production.</p> Signup and view all the answers

<p>Product costs are directly related to the acquisition or production of goods, while period costs are indirectly related and include selling expenses, interest costs, and general administrative expenses.</p> Signup and view all the answers

<p>Total goods available for sale at cost divided by total goods available at retail price</p> Signup and view all the answers

<p>The cost-to-retail ratio is multiplied by the ending inventory valued at retail.</p> Signup and view all the answers

<p>To determine an estimated inventory (goods on hand) at retail</p> Signup and view all the answers

<p>By applying the cost-to-retail ratio to the retail value of goods</p> Signup and view all the answers

<p>Total cost and retail value of goods purchased, total cost and retail value of goods available for sale, and sales for the period</p> Signup and view all the answers

<p>To facilitate the conversion of retail prices to cost using a formula</p> Signup and view all the answers