Inventory Accounting for Product Lines Case Study

Inventory Accounting for Product Lines - Case Study Example The custom auto and motorcycle paints are not distinguishable items as distinctively as the automobile kits. They have a shelf life of 60 days which means that paints entering the inventory must be leaving it within 60 days or else they will be identified by the expired coloration. This suggests a running inventory line where the inventory moves linearly. The paints bought first are sold first and the paints bought last are sold last. But since the inventory is not linearly distributed i.e. it cannot be ascertained as to how many days a particular paint has been sitting in the warehouse, the most appropriate inventory costing system would be average costing. This would mean that the cost of goods sold will incorporate the linear movement of inventory and allow for averaged costs over time. Average based costing would ensure that the proportions of the paints sold would be used to estimate the final COGS - weighted averages have significant accuracy in such inventory models. The other items in inventory (bulbs, stickers, fuses, etc) are low-priced items and the shuffli