Inventory Valuation and COGS Analysis: Accounting Report, University

This report examines the impact of different inventory valuation methods, specifically the FIFO and average methods, on the Cost of Goods Sold (COGS) and the valuation of ending inventory. The analysis considers a scenario involving transactions related to inventory purchases and sales. The report highlights the differences in COGS and ending inventory values under the two methods, demonstrating how the choice of valuation method affects profitability and the balance sheet. It concludes that the average method results in a lower profit due to the higher cost of goods sold, while the FIFO method results in no change in profit. The report also includes a brief bibliography referencing relevant academic sources related to inventory management.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note:

Table of Contents
Question 5:.................................................................................................................................3
Part c:.....................................................................................................................................3
Bibliography:..............................................................................................................................5

Question 5:
Part c:
Valuation of inventory has impact on the value of ending inventory and the cost of
goods sold. There are mainly two approaches of inventory system, one is periodic and the
other is perpetual inventory system. There are several methods of recording inventory in
these two systems. Average method or the weighted average method of recording inventory is
widely used and the FIFO system is also used in some companies depending on the nature of
its products.
In the given case study, if the given transactions are considered and a periodic
inventory system is followed ten the cost of goods sold and the respective ending inventories
have been shown in the following workings.

In the above calculations, the purchase of 100 units of inventory on 31 May, have not
been considered. It can be observed from the given transactions that there was a sale of only
250 units. Hence, the ending inventory would be 300 units if the last purchase of 100 units is
considered. As a result the value of ending inventory will be different in both the methods
and also the cost of goods sold will be different in the average method, only the cost of goods
sold in FIFO method will remain the same. Therefore, the profit will be lesser by $288 and
the value of inventory would be higher by $6,512. And in the FIFO method there would be
no change in profit but the ending inventory would be higher by $6,800.

Bibliography:
Haribhai-Pitamber, H.U. and Dhurup, M., 2014. Inventory control and valuation systems
among retail SMEs in a developing country: An exploratory study. Mediterranean Journal of
Social Sciences, 5(8), p.81.
Muller, M., 2019. Essentials of inventory management. HarperCollins Leadership.