In a periodic inventory system, inventory and COGS are calculated only at year-end via a physical count, not updated continuously. Using The Kitchen Counter’s 12 food processors (total goods available: $3,000, ending inventory: 12 units), methods include:
Assigns actual costs to the 12 units counted, requiring unique tracking (e.g., serial numbers). Ending inventory and COGS depend on which units remain.
Result: Precise but rare for identical items.
Total cost ($3,000) ÷ total units (25) = $120/unit. Ending inventory = 12 × $120 = $1,440; COGS = $3,000 – $1,440 = $1,560.
Result: Simple, averages price changes.
Assumes oldest units are sold first, so ending inventory uses recent costs: 5 units at $130, 5 at $120, 2 at $100 = $1,450. COGS = $3,000 – $1,450 = $1,550.
Result: Higher inventory value, lower COGS in rising prices.
Assumes newest units are sold, so ending inventory uses earliest costs: 10 units at $80, 2 at $90 = $980. COGS = $3,000 – $980 = $2,020.
Result: Lower inventory value, higher COGS in rising prices, tax advantage. Periodic systems shift focus to ending inventory valuation, contrasting with perpetual systems’ sale-by-sale tracking. LIFO may be restated at year-end for tax benefits.