Costing Method: A costing method determines how Cost of Goods Sold (COGS) are handled for costs associated with buying the same item at different purchase prices over a period of time.
Average (weighted-average method) – Cost of Goods Sold (COGS) is calculated as the total units available over a date range. The units are then divided by the beginning inventory cost plus the cost of additions to inventory.
First-In, First-Out (FIFO) – The first goods purchased are assumed to be the first goods sold. Therefore, the ending inventory consists of the most recently purchased goods. This method is useful to track different shipments of similar products.
Last-In, Last-Out (LIFO) – The last goods purchased are assumed to be the first goods sold. Therefore, the ending inventory consists of the first goods purchased.