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The average cost is computed by dividing the total cost of goods available for sale by the total units available for sale. This gives a weighted-average unit cost that is applied to the units in the ending inventory. There are two commonly used average cost methods: Simple weighted-average cost method and perpetual weighted-average cost method. [2]
For example, relating shipping and storage costs to a specific inventory item becomes difficult. These numbers often need to be estimated, diminishing the specificity advantage of the specific identification method. Thus, this method is generally limited to large, high-ticket items which can be easily identified specifically (such as tract houses).
If she uses FIFO, her costs are 20 (10+10). If she uses average cost, her costs are 22 ( (10+10+12+12)/4 x 2). If she uses LIFO, her costs are 24 (12+12). Thus, her profit for accounting and tax purposes may be 20, 18, or 16, depending on her inventory method. After the sales, her inventory values are either 20, 22 or 24.
Two very popular methods are 1)- retail inventory method, and 2)- gross profit (or gross margin) method. The retail inventory method uses a cost to retail price ratio. The physical inventory is valued at retail, and it is multiplied by the cost ratio (or percentage) to determine the estimated cost of the ending inventory. The gross profit ...
EVA = (r − c) × capital [the spread method, or excess return method] where r = rate of return, and c = cost of capital, or the weighted average cost of capital (WACC). NOPAT is profits derived from a company's operations after cash taxes but before financing costs and non-cash bookkeeping entries.
The weighted mean in this case is: ¯ = ¯ (=), (where the order of the matrix–vector product is not commutative), in terms of the covariance of the weighted mean: ¯ = (=), For example, consider the weighted mean of the point [1 0] with high variance in the second component and [0 1] with high variance in the first component.
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Weighted Average Cost; Moving-Average Cost; FIFO and LIFO. Queueing theory. [19] Inventory Turn is a financial accounting tool for evaluating inventory and it is not necessarily a management tool. Inventory management should be forward looking. The methodology applied is based on historical cost of goods sold.