Businesses that maintain inventory choose one method to measure the value of the inventory. These methods include last-in first-out, first-in first-out or weighted average.

The weighted average method is most commonly employed when inventory items are so intertwined that it becomes difficult to assign a specific cost to an individual unit.

Regardless of the valuation method selected (FIFO, LIFO or weighted average), there will be large differences between cost and retail inventory-valuation methods.