Question

When should the specific identification inventory cost flow method be used?

1) When the inventory consists of identical, low-cost units that are purchased and sold frequently
2) When the inventory consists of high-cost units that are purchased and sold infrequently
3) When the inventory consists of unique, high-value items
4) When the inventory consists of perishable goods

Answer 1

The specific identification method should be used for unique, high-value items, allowing for precise cost tracking of each individual item in inventory.

Step-by-step explanation:

The specific identification inventory cost flow method should be used when the inventory consists of unique, high-value items. It is ideal for businesses that sell items with significant differences in costs, such as custom jewelry, artwork, or real estate where each unit is distinct and can be identified separately. This method allows for the exact cost associated with each item to be tracked individually, ensuring that the cost of goods sold and the inventory valuation are precise.