591 wk3 db2 res1- The three cost flow methods

As I mentioned in the first discussion for this week. First in – first out(FIFO) and last in – first out (LIFO). FIFO is when the “company charges to cost of goods sold the cost of the earliest goods on hand prior to each sale” (Kimmel, 2019). Which is better understood in the terms that the earliest purchased goods are the first to be sold. LIFO is when the “company charges to cost of goods sold the most of the most recent purchase prior to sale” (Kimmel, 2019). This way is more know as the latest purchased goods are the first ones sold. Adding to that, average- cost methods “allocates the cost of goods available for sale on the basis of the weighted-average unit cost incurred” (Kimmel, 2019), the formula associate with the average-cost method is Cost of Goods Available for Sale ÷ Total Units Available for Sale = Weighted-Average Unit Cost.

FIFO is best related to a grocery store. They want to advertise the product that was the first in to get it out and consumed before it expires and has to be thrown away. This is opposite for LIFO like the retail work where the newest product brought in is what stores want to sell over their old items that are at a clearance price.

Changes are constantly changing so it important that companies stay ontop of the market and price their items accordingly.

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