Topic #3 Product Costing and the Production Environment

Materials and Finished Goods Inventory Costing Methods

One of the objectives of Managerial Accounting is to provide an accurate and meaningful figure
for the goods manufactures and sold which are to be used by management for control, analysis and
determination of the operating income.
The methods in assigning costs to inventories relates to the flow of costs and not necessarily
to the actual flow of materials and finished goods. The valuation for the ending inventory for materials
and/or finished goods depends on the inventory system used by the business. Follows may be adapted
in inventory costing methods:
1. First-in, First-out (FIFO) – inventory costs are assigned on the most recent purchase. Both
periodic and perpetual inventory system will derive the same amount of ending inventories
under the FIFO method.
2. Last-in, First-out (LIFO) – inventory costs are assigned on the earliest purchase. IFRS
recommends the use of LIFO method in all types of inventories. But in certain inventories
cannot logically require the use of LIFO because of the nature of such inventories.
3. Average Method – assigns inventory costs based on an estimated per unit cost basis.
a. Simple Average
b. Weighted Average
c. Moving-Weighted Average

Sample Application Problem

Follows are the transactions pertaining to Material X for the month of December 2018:
Dec 01 Inventory…..……400 units @ P 10
Dec 12 Purchases………600 units @ P 12
Dec 15 Issued……………500 units
Dec 18 Purchased………300 units @ P 15
Dec 20 Issued….………...200 units
Dec 23 Purchased……….400 units @ P 14
Dec 28 Issued…………….400 units
Determine the amount of ending inventory of Material X under the following assumptions:
a) Periodic, FIFO e) Periodic, Simple Average
b) Perpetual, FIFO f) Periodic, Weighted Average
c) Periodic, LIFO g) Perpetual, Moving-Weighted Average
d) Perpetual, LIFO

Problem A.
The following information is to be used in costing inventory as of August 31, 2018:
August 1 Beginning Balance……………….1,600 units @ P 6