financial accounting- bus 020 - spring 2015 session 9 inventories

Financial Accounting- BUS 020 - Spring 2015

Session 9Inventories


Inventory Components

Material

Labor

Overhead


Inventory Categories

Raw Materials

Work in Process (WIP)

Finished Goods


Manufacturing Cost Flows

BI

I

O

EI

RAW MATERIAL WORK-IN-PROCESS FINISHED GOODS

B O/H R/M B O/H WIP B O/H F/G

R/M PURCHASES

TRANSFERS TOWIP

E O/H R/M

R/M TRANSFERSDIR. LABORMFG OVERHEADMANUFACTURINGCOSTS

COST OF GOODSMANUFACTURED(COGM)

E O/H WIP

COGM

COST OF GOODSSOLD(COGS)

E O/H F/GP&L


Key Inventory Issues

Acquisition costs Carrying methods Cost flow assumption Valuation


Inventory Acquisition

What units What costs


Cost Basis

Sacrifice to put into use Components

Net price Freight Production Preparation Fees

N.B.....future benefit


Inventory Methods

Perpetual B + I - O = E

Periodic B + I - E = O


Cost Flow Assumption Specific ID Averaging FIFO…first in; first out LIFO…last in; first out Applies to costs only, NOT physical

movement Disclose both values Use same method for book and tax


Management and LIFO

Use in periods of rising prices Tax advantages

Will lower reported profits, so consider bonus impact


Inventory Valuation

Lower of Cost or Market

Obsolescence

Slow moving items


Inventory Analysis

Inventory turnover or turns COGS / Average ending inventory

Days in inventory Ending inventory / Avg. Daily COGS

financial accounting- bus 020 - spring 2015 session 9 inventories

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