Financial Education - Method for determining the cost to be allocated to the goods on hand at the end of the period

Some authors propose that the objective of inventory valuation methods is to determine the cost that will be assigned to the goods on hand at the end of the period.

Evidently, inventories are one of the most important assets for companies, considering that their sale comprises the income of the business period and will indicate the profit, for this reason it is of vital importance to carry out a correct inventory valuation.

This method assumes that the first goods to enter the warehouse will be the first to leave. This allows valuing inventories at the end of the accounting period at the last acquisition costs, and the final inventory at current costs.

Last-in-first-out method: This method allows valuing inventories with the assumption that the goods purchased first will be the last to be sold, therefore, the value of the ending inventory will be estimated based on the purchase price of the first one.

Weighted average method, consists of dividing the amount of the balance by the number of units in stock, according to this method the units of ending inventory will be valued at the average cost per unit of the stock on hand during the entire year.