1. Standard: According to the method of the standard approach to costing, both inventory and cost of goods sold are based on standard fixed cost assigned to items in the manager point when drafting the report .
2. First in, first out (FIFO): Under FIFO, the cost of goods sold is based on the cost of equipment purchased earlier in the period, while the cost of inventories is based on the cost of equipment purchased later year. This results in stocks being assessed on current replacement costs. During periods of inflation, using FIFO will result in lower estimates of cost of goods sold between the three approaches, and the highest net income.
3. Last in, first out (LIFO): Under LIFO, the cost of goods sold is based on the cost of equipment purchased by the end of the period, resulting in costs approaching current costs. The inventory, however, is assessed on the basis of cost of materials purchased earlier this year. During periods of inflation, the use of LIFO will result in the highest estimate of the cost of goods sold between the three approaches, and the lowest net income.
4. Weighted Average: Under the approach by the weighted average of both inventory and cost of goods sold are based on the average cost of all units currently in stock at the time of notification. When inventory turns over quickly this approach are closer to LIFO than FIFO.
5. Average: Under-average approach, both inventory and cost of goods sold are based on the average cost of all units received in stock.
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