In determine inventory carrying amounts at December

April 24, 2019 Communication

In regard to the specific identification inventory costing method:
A. Describe its key elements.
In specific identification method, each unit sold should be matched with its actual cost.
B. Discuss why it is appropriate for Happlia to use this method.
It is appropriate for the company because of identification number. In this method, each unit has specific identification number through this number and can easily identify the actual purchase cost.

A, What general criteria should Happlia use to determine inventory carrying amounts at December 31, 2018?
The inventory carrying amounts can be found as a whole by the company. It does not include the inventory which is transferred to the retailers. So for finding out the carrying amounts the company will include the transport charges paid by the company. The inventory in hand only consider for the valuation.
B, Give four examples of costs included in these inventory carrying amount.
1, Freight-in charges on purchases
2, Inventory carrying costs
3, Purchase discounts
4, Trade discounts

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3, What costs should be reported in Happlis’s 2018 income statement? Ignore lower of cost or market considerations.
Cost of goods sold, operating expenses along with freight-out charges.

Communication Case 8-4

Prepare a report for the president describing the factors that should be considered by Tangier in choosing between LIFO and FIFO.
Factors should be considered in choosing LIFO:
LIFO method of inventory will give current inventory carrying value of year-end inventory with the market rates. Companies which trade in goods of not perishable nature can use the LIFO method. If companies use LIFO to measure taxable income, company must use LIFO for external financial reporting.

Factors should be considered in choosing FIFO:
FIFO method of inventory will give a lower inventory cost when compared to the current market conditions when current rates are high. Inventory carrying cost at the year-end will show a lower value it will not attract the creditors and investors.


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