Which of the following inventory valuation methods is most appropriate for valuing unique or high-value items?

• A. First-In, First-Out (FIFO)
• B. Last-In, First-Out (LIFO)
• C. Weighted Average Cost
• D. Specific Identification

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory valuation methods: Inventory valuation methods are used to determine the cost of goods sold and the value of inventory on hand. Each method has its own application based on the nature of the inventory.
2. Learn about Specific Identification: This method tracks the actual cost of each individual item in inventory. It is most appropriate for unique or high-value items because it allows for precise matching of costs to specific items sold or remaining in inventory.
3. Compare Specific Identification with other methods: FIFO assumes the oldest inventory is sold first, LIFO assumes the newest inventory is sold first, and Weighted Average Cost calculates an average cost for all inventory items. None of these methods provide the level of precision needed for unique or high-value items.
4. Understand why Specific Identification is suitable: Unique or high-value items often have distinct characteristics or costs that need to be tracked individually. Specific Identification ensures accurate valuation and reporting for such items.
5. Apply the concept: When dealing with inventory like luxury goods, artwork, or specialized machinery, use Specific Identification to match the actual cost of each item to its sale or remaining inventory value.