Material Costs Flashcards
What forms of materials inventory do organisations hold?
Raw materials
Components for production
Products for resale
Service items for business use
What are the two important inventory costs?
Ordering cost
Inventory holding cost
What two ways can materials be purchased?
The level method or re-ordering
Economic Order Quantity (EOQ)
What does the inventory record also show?
The level at which inventory should be ordered
The quantity of inventory that should be re-ordered
What are the two parts to monitoring inventory quantities?
Inventory take
Inventory reconciliation to pick up discrepancies
How is inventory valued and under which standard?
Valuation is made at the LOWER of cost and net realisable value under IAS 2
What are the three inventory valuation methods?
FIFO (first in first out)
LIFO (last in first out)
AVCO (weighted average cost)
Which of the three valuation methods is not permitted under IAS 2?
LIFO and is not used for external reporting purposes
What does cost comprise of to a manufacturer?
Direct manufacturing cost of materials, labour & expenses plus production overheads which bring the product to it’s present condition or location.
Cost bookkeeping entries for stock record which transitions?
Purchases of materials
Issues of material to production
Return of materials from production to inventory
What is the level method of re-ordering?
The re-ording of materials at a fixed quantity
What is the formula for the EOQ
Square root of 2 x Annual usage x re-order cost
divided by
Inventory holding cost
