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Cost flow assumptions and effects of inventory errors
Pages 2 (502 words)
(Ans)- When we calculate Cost of Goods Sold (CGS) using FIFO, no matter what method we use, the earliest price of available goods is used no matter how many other buying transactions occur in the mean time. However while using LIFO; whenever we make a new purchase transaction, the cost per unit value changes to that of the latest purchase.
(Ans)- Results using LIFO periodic calculations cannot be actual because in this case, the items are bought and sold frequently. Prices of such items are unstable and change often with a significant difference thus the values being used to calculate profit/loss margin will be faulty.
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