Question

What are the 4 options for how to allocate capitalized inventory cost between COGS and EI?

Answer 1

There are four options for allocating capitalized inventory cost between COGS and EI: Specific Identification Method, First-In, First-Out (FIFO) Method, Last-In, First-Out (LIFO) Method, and Weighted Average Method.

Step-by-step explanation:

When allocating capitalized inventory cost between Cost of Goods Sold (COGS) and Ending Inventory (EI), businesses have four options:

1. Specific Identification Method: This method involves tracking the cost of each individual item in inventory. This way, the cost of the items sold and the cost of the items remaining in inventory are recognized separately.
2. First-In, First-Out (FIFO) Method: This method assumes that the first items purchased are the first ones sold. The cost of goods sold is calculated based on the oldest items in inventory, while the ending inventory reflects the cost of the most recent purchases.
3. Last-In, First-Out (LIFO) Method: This method assumes that the last items purchased are the first ones sold. The cost of goods sold is calculated based on the most recent purchases, and the ending inventory reflects the cost of the oldest items in inventory.
4. Weighted Average Method: This method calculates the average cost of inventory by dividing the total cost of goods available for sale by the number of units available for sale. This average cost is then used to allocate the cost between COGS and EI.