Intermediate Accounting 7 Inventories Inventory costs Selling costs, which are no te associated with bringing the inventory to its existing condition and location, are never included in Inventory Interest costs are not included in the cost of inventory that is routinely manufactured
Inventory costs Selling costs, which are not associated with bringing the inventory to its existing condition and location, are never included in inventory . Intermediate Accounting 7 Inventories Interest costs are not included in the cost of inventory that is routinely manufactured
Intermediate Accounting 7 Inventories Inventory costs v Material manufacturing costs which are related directly or indirectly to the production of inventory are costs of Inventory Y Variable manufacturing overhead is related directly and is al ways included in Inventory V The allocation of fixed manufacturing overhead is difficult and may be somewhat arbitrary: the costs incurred must be traceable to the benefits
Inventory costs ✓Material manufacturing costs which are related directly or indirectly to the production of inventory are costs of inventory. ✓Variable manufacturing overhead is related directly and is always included in inventory. ✓The allocation of fixed manufacturing overhead is difficult and may be somewhat arbitrary: the costs incurred must be traceable to the benefits. Intermediate Accounting 7 Inventories
Intermediate Accounting 7 Inventories 5. Inventory valuation methods Specific identification v First-in first out(FIFO) Average cost Last-in. first- out LiFo)
5. Inventory valuation methods Intermediate Accounting 7 Inventories ✓ Specific identification ✓ First-in, firstout (FIFO) ✓ Average cost ✓ Last-in, firstout (LIFO)
Intermediate Accounting 7 Inventories Specific / dentification Assigns the actual cost of the asset to Inventory and Cost of'ge Provides a highly objective method of matching costs because cost flow exactly matches physical goods IlOW. Is almost impossible to implement cost effectivel
Specific Identification Intermediate Accounting 7 Inventories ➢ Assigns the actual cost of the asset to Inventory and Cost of Goods Sold. ➢ Provides a highly objective method of matching costs because cost flow exactly matches physical goods flow. ➢ Is almost impossible to implement cost effectively
Intermediate Accounting 7 Inventories First-in, First-out(FIFO) Method Assigns historical unit cost to Cost of goods Sold in the order the costs are incurred Provides a close match between physical product flow and product cost flow Results in the same inventory valuation and Cost of Goods Sold regardless of whether perpetual or periodic inventory is used
First-in, First-out (FIFO) Method Intermediate Accounting 7 Inventories ➢ Assigns historical unit cost to Cost of Goods Sold in the order the costs are incurred. ➢ Provides a close match between physical product flow and product cost flow. ➢ Results in the same inventory valuation and Cost of Goods Sold regardless of whether perpetual or periodic inventory is used