CAT / FIA FFA Syllabus D. Recording Transactions And Events - Inventory valuation methods - Notes ^{9 / 10}

Each method of valuation produces different costs both of closing inventories and also of material issues.

Since raw material costs affect the cost of production, and the cost of production works through eventually into the cost of sales, it follows that different methods of inventory valuation will provide different profit figures.

In times of rising prices, using FIFO method will mean the financial statements show higher inventory values and higher profit.