You are studying with some classmates and are reviewing each other’s responses to the following question:

“Why are cost formulas necessary?”

Your classmate responds as follows:

“Cost formulas are used to figure out which unit costs will be allocated to cost of goods sold and which will be allocated to ending inventory. The three cost formulas are: specific identification, FIFO, and weighted-average. Cost formulas are important because they can affect a company’s reported gross profit, net income, and ending inventory.”

Required

Identify how your classmate’s answer could be substantively improved.