The-definition.com

Definition

Specific identification method

Specific identification method refers to an actual physical flow costing method in which items still in inventory are specifically coasted to arrive at the total cost of the ending inventory.

Specific identification requires that companies keep records of the original cost of each individual inventory item. Historically it was possible only when a company sold a limited variety of high-unit-cost items that could be identified clearly from the time of purchase through the time of sale. Example of such products are cars, pianos, or expensive antiques.

A major disadvantage of the specific identification method is that management may be able to manipulate net income. For example, it can boost net income by selling units purchased at a low cost, or reduce net income by selling units purchased at a high cost.

Share it:  Cite

More from this Section