Cost Formula
- Mostly inventories are purchased / made in different lots and unit cost of each lot frequently differs. In all such circumstances, determination of closing inventory cost requires identification of units in stock to have come from a particular lot.
- This specific identification is best wherever possible. In all other cases, the cost of inventory should be determined by the First-In First-Out (FIFO), or Weighted Average cost formula.
- The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.
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