Inventory Flashcards
Are inventories assets?
Yes
Explain the advantages and disadvantages of using the FIFO, LIFO and Weighted Average
methods for stock valuation
FIFO - It is logical and easy to understand. However, need to identify each batch of materials purchased.
LIFO - Inventories are at a close price to current market price and useful for decision making for managers as based on recent costs. However, can result in batches being only part used in the inventory records before another arrives.
Weighted average - Price fluctuations are smoothed out and no need to identify separate batches. However, issue price does not relate to any actual price paid and average costs tend to lag behind current market prices.
How do you calculate net realisable value?
Selling price - commission - royalty
What are production overhead costs?
The costs that aren’t direct such as factory rent, electricity etc.
