 |
Inventory
Costing
Inventory costing is a very
important part of the Cost Accountant's position.
The inventory represents a major investment for most companies.
It is critical to assign proper value and properly report it.
If
the value of the parts in inventory is wrong:
A future write-down of the holding value of the inventory may be
necessary. This
is not good for job security.
How
to value parts in inventory:
- Value usable, non-obsolete parts at the same
cost as current production parts.
- Assure that accounting
cost elements are valued properly.
What
about parts that are produced at a loss?
- The carrying value of parts produced at a loss
must reflect the
market value (i.e. sales price), not cost. This is the lower
of
cost or market rule.
- After calculation of the lower of cost or
market, an adjusting entry is needed to adjust
inventory to the proper value.
If
burden cost is
going to change in the new year:
- A dramatic change in the new year's volume of
parts or the product
mix causes a BIG change in the inventory valuation and a change in
burden cost.
- As the volume of business changes, so does our burden allocation, and
therefore our inventory valuation.
- This is not the fault of the Cost Accountant,
this is a change in
business.
- Be sure to alert the management as soon as you
find out, so they can prepare to explain the change.
Obsolete parts in inventory:
- Obsolete parts usually are scrapped or kept at
zero inventory value, according to management decision.
- Sometimes parts are kept for many years,
just in case they are ever needed. Of course, this is
dependent on room available in the warehouse.
Return
to TOP of Page
Return from Inventory Costing to Home Page
|
|
