Questions: Which of the following inventory cost flow methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items? 1. wighited average cost b. FIFO c LIFO d specficidentification

Which of the following inventory cost flow methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items? 1. wighited average cost b. FIFO c LIFO d specficidentification
Transcript text: Which of the following inventory cost flow methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items? 1. wighited average cost b. FIFO c LIFO d specficidentification
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Solution

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The answer is the fourth one (d): specific identification.

Explanation for each option:

  1. Weighted Average Cost: This method averages out the cost of all inventory items, making it more suitable for businesses with large volumes of similar items. It is not ideal for unique, high-cost items because it does not track individual item costs.

b. FIFO (First-In, First-Out): This method assumes that the oldest inventory items are sold first. While it can be used for various types of inventory, it is not specifically tailored for unique, high-cost items where tracking individual costs is important.

c. LIFO (Last-In, First-Out): This method assumes that the most recently acquired inventory items are sold first. Like FIFO, it is not specifically designed for unique, high-cost items and does not track individual item costs.

d. Specific Identification: This method tracks the actual cost of each specific item in inventory, making it ideal for businesses with a small number of unique, high-cost items. It allows for precise matching of costs with revenues for each item sold.

Summary: The specific identification method is most appropriate for businesses with a small number of unique, high-cost items because it allows for accurate tracking of individual item costs.

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