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How can identical hammers have different accounting costs?

Imagine a hardware store buys a box of identical hammers for $10 each in January, and another box of the exact same hammers for $15 each in June. When a customer buys one hammer in July, what did that hammer cost the store? Periodic FIFO (first-in, first-out) and weighted-average accounting assign those costs differently between sales and remaining inventory, even when the hammers sit in the same bin.

4–5 min

Questions you could explore

  • How do the two methods treat a low-price purchase followed by a high-price one?
  • Why does the total purchase cost still have to be accounted for?

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