Final answer:
The Specific Identification method requires detailed tracking of each inventory item sold, and is suitable for unique, high-value items. It differs from other methods like FIFO and LIFO that make cost assumption.
Step-by-step explanation:
The inventory costing method that requires companies to keep detailed inventory records and carefully identify the inventory item being sold is known as Specific Identification. This method tracks each item of inventory with a specific cost attached to it. It is most suitable for items that are distinguishable from each other, such as vehicles, jewelry, or real estate, where each has a unique identifier and different cost. The method is less common for homogeneous goods as it is impractical to track each individual unit sold.
Under Specific Identification, when a sale occurs, the company must identify which specific item(s) were sold and the cost related to those exact item(s). This detail-oriented method is different from other inventory costing methods like First-In, First-Out (FIFO) or Last-In, First-Out (LIFO), which apply assumptions rather than exact identification to ascertain cost of goods sold (COGS)