How do you calculate inventory valuation using FIFO, LIFO, or WAC methods?

FIFO (First-In, First-Out) Assumption: The first units purchased are the first units sold. ? Calculation: The cost of goods sold is calculated using the cost of the earliest units purchased. ? Impact: In periods of rising prices, FIFO results in a higher cost of goods sold and a lower ending inventory value.

To calculate inventory valuation using FIFO (First-In-First-Out), multiply the quantity of remaining inventory by the cost per unit of the oldest batch. This method assumes that the oldest units are sold first and provides a valuation reflecting current market prices more accurately.

Inventory valuation using LIFO (Last in, First Out) assumes that the most recent order is what is remaining in your inventory and all older product has been sold. Multiply your remaining inventory by you COG of the most recent order(s). If you have more on hand inventory than your most recent order, you may have to weight COG for multiple orders.

Inventory valuation is a crucial aspect of financial management for any business. It refers to the process of determining the monetary value of a company's inventory at a specific point in time. There are three commonly used methods for calculating inventory valuation - FIFO (First-In-First-Out), LIFO (Last-In-First-Out), and WAC (Weighted Average Cost). FIFO method assumes that the first items purchased are the first ones to be sold, LIFO method assumes that the last items purchased are the first ones to be sold, and WAC method takes into account the average cost of all items in inventory. Each method has its own advantages and disadvantages, and it is important for businesses to carefully evaluate which method is most suitable for it.

To calculate inventory valuation, you can use FIFO, LIFO, or WAC methods. FIFO (First In, First Out) assumes the oldest items are sold first, with the cost of earlier purchases recorded as COGS and newer ones in inventory. LIFO (Last In, First Out) assumes the latest purchases are sold first, leading to higher COGS and lower inventory value when prices rise. WAC (Weighted Average Cost) calculates an average cost for all inventory items, dividing the total cost of goods available by the total units, and applies this average to both COGS and remaining inventory. Each method impacts financial statements differently based on market conditions.

LIFO (Last-In, First-Out) Assumption: The last units purchased are the first units sold. ? Calculation: The cost of goods sold is calculated using the cost of the latest units purchased. ? Impact: In periods of rising prices, LIFO results in a lower cost of goods sold and a higher ending inventory value.

To calculate inventory valuation using LIFO (Last-In-First-Out), multiply the quantity of remaining inventory by the cost per unit of the newest batch. This method assumes that the newest units are sold first and may offer tax advantages but may not reflect current market prices as accurately as FIFO.

WAC (Weighted Average Cost) Assumption: All units are assumed to have the same average cost. Calculation: The average cost is calculated by dividing the total cost of goods available for sale by the total number of units available for sale. ? Impact: WAC provides a middle ground between FIFO and LIFO, resulting in a cost of goods sold and ending inventory value that is between the two methods.

To calculate inventory valuation using WAC (Weighted Average Cost) method, divide the total cost of goods available for sale by the total number of units available for sale to determine the average cost per unit. Then, multiply the average cost per unit by the quantity of ending inventory to obtain the valuation. WAC provides a simplified average cost across all units, offering a middle-ground approach that smoothens variations in purchase prices.