Question

Question:Ward Hardware does not expect costs to change dramatically and wants to use an inventory costing method that averages cost changes.

Requirements

1. Which inventory costing method would best meet Ward’s goal?

2. Assume Ward wanted to expense out the newer purchases of goods instead.

Which inventory costing method would best meet that need?

Short answer

The inventory method under the first case is the weighted average. The inventory method under the second case is the LIFO method.

Step-by-step solution

Step-by-Step-SolutionStep1: Inventory costing method for Ward

As given, Ward wants to use an inventory costing method that evaluates the inventory on an average basis. Thus the appropriate costing method would be the weighted average method.

By applying this method the cost would not change irregularly and the change would be based on the average of the old and new inventory costs.

Inventory method based on newer purchased inventory

If Ward Hardware wants to utilize newer inventory first and wants to value inventory based on new purchases, the most appropriate method for this purpose would be the LIFO method.

Under this method, the inventories that is purchased first are issued first and the historical inventory is kept on hand for future need.