Inventory Valuation Methods

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4 Inventory Valuation Methods For Accurate
Inventory Analysis - Rakesh Narula Co
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• Inventory Valuation Methods are an essential part
  of every businesss costing process.
• Inventory Valuation Methods also helps in
  determining the actual cost per product and
  profitability.
• Some of the major benefits are calculating
  income, financial position and the liquidity
  analysis of the Organisation.

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Method 1

• First In First Out (FIFO)
• It is one of the widely used inventory valuation
  methods.
• In this process, the materials that came first
  are the first to go out.
• It is mostly is used for perishable items because
  companies typically sell their products according
  to their manufactured date to calculate the
  actual flow of goods.

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Method 2

• 2. Last In First Out (LIFO)
• It is second most widely used inventory valuation
  methods.
• In this process, the purchased items are used
  for manufacturing.
• This principle also applies for manufactured
  goods and is exactly opposite to FIFO method.
• So when the price of materials increases the
  value of the cost of goods is higher.

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Method 3

• 3. Weighted Average Cost (WAC)
• Weighted Average Cost is one of the lesser used
  inventory valuation methods.
• It is used by companies that do not have much
  variation in inventory.
• It takes a specific period for calculating the
  average value of the stock. For instance the same
  units as toys or stationary items like pencil.
• The Business can assign those inventory units the
  same cost.

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Method 4

• 4. Specific Identification Method
• It is the least and simplest used inventory
  valuation methods when compared to other methods.
• By using, this process the firm will attach the
  exact cost of producing that item to that
  particular item.
• Nevertheless, the firm needs to track the items
  price growth right from the start of production.

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