Chapter 5 Flashcards
Inventory can be included in the following categories
Materials and components, finish goods that have been completed ready for sale plus brought in good ready for resale, finish goods which are items for which manufacturers begun but only partly completed
Why would some surface companies such as accounting firms and insurance companies may require less detailed control of inventory?
Because the final product is not a physical project, however even hear some raw material inventory will be required, e.g. paper
Evaluation of inventory is closely linked to what?
The other signing the cost to projects and services that have been sold in a period
What information is shown on the inventory card
Issues to production, receipts, balance
What is a good receive note?
A document raised in the goods in which department to confirm the quantity, condition and type so good receive by them for the business’s own records
Define materials requisition
I requested material materials by the production department sent to stores
What are the stores ledger account similar to?
An inventory card
What are the differences between the stores ledger accounts and the inventory cards?
Cost details are recorded in the store ledges account so that the unit cost in total cost of each issue receipt is shown
The store ledger accounts are written up and kept in the costing part of the accounts department or in stores office separate from the stores, by a clerk experienced in cost bookkeeping
What will a department requiring goods need to complete?
I purchased requisition from asking the purchasing department to carry out the necessary transaction
Who must counter sign a purchase requisition?
The supervisor or department head who is responsible for the departments budget
Where is the purchase requisition sent?
To the purchasing department, who will select an appropriate supplier
Who completes a purchase order form?
It is completed by the purchasing department… I know it should be sent even if the order is made by telephone to confirm the order is legitimate
When good site issued the production department from stores a warehouse, a value will need to be recorded where?
On the stores ledger accounts and on the costing details for the job or department that is going to bear the cost
What is first in and first out?
Assume the items purchased earliest are issued first. Inventory on hand is valued at the lowest prices, issues are costed at the earliest relevant prices.
What does first and first out assume?
That the first items brought at the first items issued
When is FIFO most appropriate
In businesses where the oldest items actually issued first, which is the case with good such as food
In a time of rising price is fifo values inventory at what?
The highest amount, leading to a high value of closing inventory at the end of accounting period which makes that period profit look better
Define last in first out
Assumes that items purchased latest data issued first. Inventory on hand is valued at the earliest relevant prices and issues cost at the latest prices.
When is LIFO deemed appropriate?
If new deliveries are physically piled on top of existing inventories and good top hit from the top of the pile
When LIFO issues it is appropriate for what?
Reports to internal management only
Why isn’t an LIFO used commonly?
It can result in infantry evaluations that are outdated as they will be based on evaluation and materials brought a long time ago in the past
In times of general price inflation, LIFOO means what?
A lower value of inventory at the end of a period then FIFO so the periods profit tend to look worse
What is a VCO?
Awaited average cost is calculated each time there is a receipt of inventory. Subsequent issues are costed in inventory on hand is valued at the most up-to-date weighed average cost.
What is the general formula for AVCO?
Total value of existing inventory plus total value of units added to inventory——————————
Units of existing inventory plus units added to inventory
= average price per unit
When is avco most appropriate?
If the inventory are mixed when they are stored, e.g. chemical stored in a VAT
What happens with avco when prices are generally rising?
AV CO distort period profit less than FIFO or LIFO since it uses an average of the prices of which the actual inventory was purchased
Define buffer stock
A minimal level of inventory, a level that inventory should not fall below
What does buffer stock represent?
A minimal level of inventory, Level the inventory should not fall below
What is lead time?
The time between placing an order for inventory and receiving the inventory
What is a reorder level?
A level that should allow infantry to remain above its minimum level while waiting for a delivery
What happens when the level of inventory force to the reorder level
An order is placed with a supplier
What is the formula for re-order level?
Re-order level=(maximum usage per day X maximum lead time in days) plus buffet inventory
What happens if the re-order quantity is set too high?
Means that when a delivery is received, it will result in high level of infantry and therefore high storage costs. It would be uneconomical.
What happens if the re-order quantity is too low?
Result in many small orders happen to be placed in this case storage cost will be lower but delivery cost will be higher
What is economical order quantity?
An organisation will have to balance the re-order quantity and establishing order size that keeps his overall costs as low as possible
When will inventory be at his highest?
After delivery has been received
To find manufacturing account
Statement analyses costs to show the cost of good sold by a business
To define manufacturing costs
Direct cost plus manufacturing overheads
Define cost of goods manufactured
Manufacturing cost plus net inventory of wip
Define cost of goods sold
Opening infantry of all items, plus purchases, direct labour and manufacturing overheads, less closing inventory of all items
Define direct materials used
The cost of materials purchased in the period, plus the cost of opening inventory less the cost of closing inventory of materials
Define direct costs
The total cost of direct material is used in direct labour
Define unit product cost
The cost of each item manufactured if the full cost of direct materials, direct labour and expenses are included
