Methods Of Identifying The Cost Of Inventories And Pricing Stores Issues

Question 1

What’s the ‘First in, First out’ method?

Answer 1

The materials issued to production or finished goods sold are those which have been in inventories for the longest time. The inventory is thus composed of the most recent purchases.

Question 2

What’s the ‘Last in, First out’ method?

Answer 2

The materials issued to production or finished goods sold are those which have been in inventories for the shortest time. The inventory is thus composed of those goods that’ve been held the longest.

Question 3

What’s the ‘Weighed Average / Average Cost’ method?

Answer 3

The materials issued to production or finished goods sold and the inventories comprise a mixture of each batch of purchases or production.

Question 4

How can you tell if a company has more closing inventory?

Answer 4

If the profit of a company is high, then it has a large value of inventory that hasn’t been sold.

Question 5

What’s the formula for net realisable value?

Answer 5

sales price - cost to complete - any cost to sell inventory.