Specific Identification
- Submitted by: ray2011
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- Category: Science
- Date Submitted: 12/08/2010 09:11 PM
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Specific Identification:
There are many methods to cost valuation and inventory accounting. As with all inventory systems, the primary purpose is to account for each item within the inventory, associate costs, apply forecast methods for predicating anticipated ordering needs, and to initiate cost control efforts to become more efficient with leaner inventory models. One of the ways to accomplish this is by instituting a perpetual inventory system. A perpetual inventory system provides a robust accounting of inventory on hand at all time (University of Phoenix, 2005). The Specific Identification method of cost valuation compliments a perpetual inventory system. This method has many advantages and disadvantages, but overall can be very useful to organizations.
With Specific Identification inventory, cost valuation primarily allows organizations and businesses to determine the ending inventory balance and cost. A specific contingency to this method being used is the intricate detail required for a physical count, to account for each and every item and the date each of the items were purchased. After the physical count is measured, this quantity is multiplied by the purchase price to derive the final inventory cost. This allows for an exact measurement and cost of the entire inventory at any given day (University of Phoenix, 2005).
There are some advantages and disadvantages in using the Specific Identification cost valuation method. Due to the level of detail required for this method, more accurate and timely analysis can be conducted. In contrast, it is easy to manipulate the ending inventory cost by reporting that less expensive items were sold first. Additionally, it is difficult to associate intangible costs, such as shipping and storage, to any one particular item (University of Phoenix, 2005). At best, these would be estimations, which would lower the accuracy of the data and the benefit of this method.
There are many methods to cost valuation and inventory accounting. As with all inventory systems, the primary purpose is to account for each item within the inventory, associate costs, apply forecast methods for predicating anticipated ordering needs, and to initiate cost control efforts to become more efficient with leaner inventory models. One of the ways to accomplish this is by instituting a perpetual inventory system. A perpetual inventory system provides a robust accounting of inventory on hand at all time (University of Phoenix, 2005). The Specific Identification method of cost valuation compliments a perpetual inventory system. This method has many advantages and disadvantages, but overall can be very useful to organizations.
With Specific Identification inventory, cost valuation primarily allows organizations and businesses to determine the ending inventory balance and cost. A specific contingency to this method being used is the intricate detail required for a physical count, to account for each and every item and the date each of the items were purchased. After the physical count is measured, this quantity is multiplied by the purchase price to derive the final inventory cost. This allows for an exact measurement and cost of the entire inventory at any given day (University of Phoenix, 2005).
There are some advantages and disadvantages in using the Specific Identification cost valuation method. Due to the level of detail required for this method, more accurate and timely analysis can be conducted. In contrast, it is easy to manipulate the ending inventory cost by reporting that less expensive items were sold first. Additionally, it is difficult to associate intangible costs, such as shipping and storage, to any one particular item (University of Phoenix, 2005). At best, these would be estimations, which would lower the accuracy of the data and the benefit of this method.