Question

Which of the 4 methods for how to allocate capitalized inventory cost is a physical tracking method as opposed to a cost flow assumption like the rest?

Answer 1

The physical tracking method for allocating capitalized inventory cost is called the Specific Identification method.

Step-by-step explanation:

The method for how to allocate capitalized inventory cost that is a physical tracking method is called the Specific Identification method. This method involves physically tracking each unit of inventory and assigning the actual cost to the specific item that is sold or used.

Unlike the other methods like First-In-First-Out (FIFO), Last-In-First-Out (LIFO), and Weighted Average, the Specific Identification method does not rely on cost flow assumptions. Instead, it ensures that the exact cost of each item is matched with its corresponding revenue, providing a more accurate representation of inventory costs.

For example, if you have a store selling expensive jewelry with unique serial numbers, the Specific Identification method would allow you to track the cost of each individual piece of jewelry and allocate the actual cost to the items sold.