Inventory Valuation Methods and Calculations

The video tutorial explains how different inventory valuation methods—FIFO, LIFO, and Weighted Average—affect the cost of goods sold and ending inventory balance. Using a smart toilet example, the tutorial demonstrates how to calculate these values under each method, highlighting the impact of rising prices on net income. FIFO results in lower cost of goods sold and higher net income in inflationary periods, while LIFO results in the opposite. The Weighted Average method provides a middle ground.

Which inventory valuation method assumes that the oldest inventory items are sold first?

• FIFO

• Specific Identification

• LIFO

• Weighted Average

What is the initial inventory level for the retailer at the start of January 2022?

• 100 units

• 150 units

• 0 units

• 50 units

On which date did the retailer make the first purchase of smart toilets?

• January 5th

• January 14th

• January 29th

• January 31st

How many units were purchased on January 14th, and at what price per unit?

• 50 units at $1500

• 30 units at $1300

• 80 units at $1600

• 40 units at $1200

Using FIFO, what is the cost of goods sold for the 50 units sold?

• $61,000

• $80,000

• $71,667

• $154,000

In a period of rising prices, which method results in the highest cost of goods sold?

• FIFO

• LIFO

• Weighted Average

• Specific Identification

What is the impact of using LIFO in an inflationary environment on net income?

• Higher net income

• Variable impact

• Lower net income

• No impact

How is the weighted average cost per unit calculated?

• Total units divided by total cost

• Total cost divided by total units

• Sum of all unit costs

• Average of FIFO and LIFO costs

In a declining price environment, which method results in the highest cost of goods sold?

• Specific Identification

• LIFO

• Weighted Average

• FIFO