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The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve (in the example above, it is $750, i.e. $5250 - $4500). This reserve, a form of contra account , is essentially the amount by which an entity's taxable income has been deferred by using the LIFO method.
For example, relating shipping and storage costs to a specific inventory item becomes difficult. These numbers often need to be estimated, diminishing the specificity advantage of the specific identification method. Thus, this method is generally limited to large, high-ticket items which can be easily identified specifically (such as tract houses).
IAS 2 allows for two methods of costing, the standard technique and the retail technique. The standard technique requires that inventory be valued at the standard cost of each unit; that is, the usual cost per unit at the normal level of output and efficiency.
Two very popular methods are 1)- retail inventory method, and 2)- gross profit (or gross margin) method. The retail inventory method uses a cost to retail price ratio. The physical inventory is valued at retail, and it is multiplied by the cost ratio (or percentage) to determine the estimated cost of the ending inventory. The gross profit ...
The control of inventory involves managing the physical quantities as well as the costing of the goods as it flows through the supply chain. In managing the cost prices of the goods throughout the supply chain, several costing methods are employed: Retail method; Weighted Average Price method; FIFO (First In First Out) method
This allowed the full cost of products that were not sold in the period they were produced to be recorded as 'inventory' in the Balance sheet to be carried forward to the next accounting period, using a variety of complex accounting methods, which was consistent with the principles of GAAP (Generally Accepted Accounting Principles). It also ...
An ABC analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost, [1] while also providing a mechanism for identifying different categories of stock that will require different management and controls. The ABC analysis suggests that inventories of an organization are not of equal value. [2]
Inventory may also cause significant tax expenses, depending on particular countries' laws regarding depreciation of inventory, as in Thor Power Tool Company v. Commissioner. Inventory appears as a current asset on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations ...