A Comprehensive Analysis of Inventory Valuation Methods

This essay provides an analysis of different inventory valuation methods, focusing on their importance in organizational inventory management. It discusses three primary methods: First-In, First-Out (FIFO), Weighted Average, and Last-In, First-Out (LIFO). The FIFO method assumes the earliest purchased inventory is sold first, influencing inventory valuation. The weighted average method uses the average cost of all inventory to determine the value of goods sold and remaining stock. While LIFO is less commonly used now, it assumes the latest purchased inventory is sold first. The essay references academic sources to support its explanations of these methods and their implications for inventory management.

Inventory method
Analysis of different inventory methods

Inventory methods and its
importance
• Inventory methods are used to management inventory
properly within an organization.
• There are number of different inventory methods.
• The method that suits best the requirements of an
organization is used by the organization to effectively
manage and control the inventories.

Different types of inventory
methods
Different types of inventory methods which are used by
organizations are as following:
First in first out (FIFO).
Weighted average inventory method.
Last in first out inventory method.

First in first out (FIFO)
• FIFO method assumes that inventory first purchase is sold
first.
• Accordingly, the inventory is valued assuming that
inventory purchased at the earliest is sold and the
inventory purchased at the latest is remaining in the store
(Simeon, 2018).
• Most of the business organizations use FIFO method.

Weighted average inventory
method
• In contrast to FIFO, weighted average method considers
the weighted average price of total inventory present at
any given time to calculate the price of inventory issued as
well as inventory left over in the store (May, Atkinson &
Ferrer, 2017).
• Thus, the closing stock in such cases is valued by taking
weighted average price of inventory.

Last in first out method
• Though not anymore an acceptable method of inventory
management however, once the method was quite popular.
• Under this method the inventory purchased latest
assumed to have been issued and the inventory purchased
at the earliest assumed to have kept at the store (Simeon,
2018).
• Accordingly the value of inventory issued and closing
stock were valued.

References
• May, B., Atkinson, M., & Ferrer, G. (2017). Applying
inventory classification to a large inventory management
system. Journal Of Operations And Supply Chain
Management, 10(1), 68. doi: 10.12660/joscmv10n1p68-86
• Simeon, E. (2018). Implication of Choice of Inventory
Valuation Methods on Profit, Tax and Closing
Inventory. Account And Financial Management
Journal, 03(07), 3-7. doi: 10.31142/afmj/v3i7.05