Chapter 8 & 9 Flashcards
Cost of sale formula in inventory card
Add all the out columns except memo and credit notes. Then minimize credit notes from the in column.
Adjusted Gross Profit formula
Sales, Less Cost of sales, Gross profit, Less Inventory loss or Inventory written down
Define Perpetual system of inventory recording
Recording inventory transactions in inventory cards, then conducting a physical count at the end of the period to verify the balances of those inventory cards, in the process detecting any inventory losses or gain.
Benefits of Perpetual system
1)Recording of inventory is assisted
2)Fast and slow-moving lines of inventory can be identified
3)Inventory losses or gain can be detected by comparing the balances of the inventory cards against the physical count
Product costs
All costs incurred in order to bring inventory into a condition and location ready for sale. Can be allocated to individual units of inventory on a logical basis.
Period costs
A cost incurred in order to bring inventory into a condition and location ready for sale, that cannot directly relate to the inventory on a logical basis.
Inventory loss will occur for instances
Damaged
Superseded by a new model
Decrease in demand
Lost popularity
Define Net realizable value (NRV):
the estimated selling price of inventory less any costs involved in its selling, marketing or distribution.
Net realizable value formula
Estimated selling price Less Direct selling expenses
Lower of Cost and Net realizable value rule
Inventory should be valued at either its cost, or its Net realizable value, using whichever value is lower
Inventory write down
The expense incurred when the Net realizable value of an item of inventory falls below its cost or original price.
Inventory write down formula
Cost Less Net realizable value
Managing Inventory strategies
Ensure inventory is up to date
Appoint an inventory manager
Rotate inventory
Determine an appropriate level of inventory on hand
Identified cost:
A method of valuing inventory by physically marking each item in some way so that its individual cost price can be identified.
First In, First Out (FIFO)
A method of valuing inventory that assumes the first items purchased are the first sold, and therefore values inventory sold using the earliest cost price on hand.
