Question

State two methods of stock valuation used in cost accounting.

Hint:

FIFO = oldest stock issued first, LIFO = newest stock issued first.

Answer 1

Stock valuation determines the worth of on-hand materials or goods at the close of an accounting period.
In cost accounting, two prevalent methods are:
1. FIFO (First In First Out): Oldest items are dispatched first, and the remaining inventory is valued at the most recent purchase cost.
2. LIFO (Last In First Out): Newest items acquired are dispatched first, and the remaining inventory is valued at the earliest purchase cost.
Additional methods include the Weighted Average Price Method and the Standard Cost Method.
The selection of a method influences the cost of goods sold and inventory valuation, thereby impacting profit calculations.