Inventory Flow Assumptions Briefly Discuss the Factors Management Should Consider in Deciding

question 27

Essay

Inventory flow assumptions
Briefly discuss the factors management should consider in deciding:
(a)Whether to use specific identification or a cost flow assumption in measuring the cost of goods sold.
(b)Whether to use FIFO or LIFO.(Assume a long-run trend of slowly rising prices. )

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Definitions:

Acquisition of Inventory

The process of obtaining goods or materials for sale or use, either through purchase or production.

Purchases Account

A general ledger account in which the purchases of goods intended for resale are recorded.

Gross Profit

The difference between sales revenue and the cost of goods sold before deducting operating expenses, interest, and taxes.

Overall Profitability

An assessment of a company's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.