Advantages of Inventory Control
The following are suggested advantages:
1. Eliminates wastages in use of material.
2. It reduces the risk of loss form fraud and theft.
3. It helps in keeping perpetual inventory and other records to facilitate the preparation of accurate material reports management.
4. To reduce the capital tied up in inventories.
5. It reduces cost of storage.
Disadvantages of Inventory Control
Every firm has to maintain optimal level of inventories. It not the following will be the result in form of losses.
1. Opportunity cost: Every firm has to maintain inventory for that some investment isneeded it is known as opportunity cost and handle the investment in inventory are more the funds are blocks up with inventory.
2. Excessive inventories: It will lead to firm losses due to excessive carrying
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The chief advantage of the cost or net realizable value rule is that it is conservative. Hence the methods of valuation of inventory are quite independent of system of mincing.
In balance sheet closing stock is shown under current assets and it also credited to manufacturing or trading accounts. The inventories are valued on the basis as follows:
I) Cost of raw materials in stock may include freight charges and carrying cost. But such cost should not exceed market price.
II) Work - in - process is generally valued at cost, which includes cost of materials, labor. And the proportionate factory overhead, as it is reasonable according to degrees of completion.
III) Cost of finished goods wound normally to the total or full cost it includes prime cost plus appropriate amount of the overhead. Selling and distribution cost is deducted on the other hand work in progress may be valued at work in progress may be valued at work cost, marginal cost, prime cost or , even at direct materials.
Purchase & stores
In addition increases the costs due to out of date and damage lots of inventory, which are also leading to high shrinkage level for the retailer. It is possible to overcome these barriers and enhance the company’s reputation, increase customer satisfactions including high level of profitability by practising good inventory management system in place (Warren, Reeve, & Duchac, 2013).
It is a remarkable reality that the traditional costing systems use a solitary, volume-based cost driver. This is the motivation behind why the traditional product costing system misshapes the expense of items or products. By and large, this kind of costing system appoints the overhead expenses to items on the premise of their relative use of direct work. Thus, traditional cost systems frequently report incorrect product costs. The issue is in the basic technique of the traditional costing systems. They stick to the supposition that items reason cost. Every time a unit of product is produced, it is expected that cost be brought about.
330-10-30330-10-30-1 The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory costs may be easily stated, their application, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the allocation of costs and charges.
Compute the ending balance in the Work in Process inventory account. Assume that this balance consists entirely of goods started during the year. If $32,200 of this balance is direct materials cost, how much of it is direct labor cost? Manufacturing overhead cost?
Because, in first months we will produce more than what we will sell so the expense for storage and inventory will increase under the level monthly production.
The paperwork is needed so that the inventory can be check and figured out the true value of the inventory. A better way at looking any logical justification for cost or market inventory valuation is that a stock of items is necessary to expedite production and sales. If inventory become obsolescence, goes through physical deterioration, and price declines occur, or even if the stock when finally utilized cannot be expected to realize its stated cost plus a normal profit margin. Reduction in inventory value is an additional cost of the goods produced and sold during the time that they decline value occurred
For a company the size of Smitheford Pharmaceutical inventory cost can be a large portion of the inventory value on hand. Inventory cost also known as ordering cost or carrying cost can be defined as the cost a company obtain to tore and maintain inventory over a certain time period ("Carrying
In order for a company to succeed and be successful, it is very important for the company to understand the difference between profit and cost of goods. There are costing tools that can help a business figure out what the cost of product is during the manufacturing process. These tools are beneficial for a company to figure out how much profit can be made. These tools take the cost of manufacturing the unit and subtract it from the sale price of the product. Having this information, the profit per unit, is very beneficial for a company to know which products they should produce more heavily, or which ones to eliminate. I want to discuss two costing methods that are beneficial to a
The company uses the weighted-average cost method in its process costing system. The ending inventory is 50% complete with respect to conversion costs.
| (TCO F) For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs rather than a process costing system?
Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to
An increase in inventory is likely to lead to an increase in the cost of managing the goods and also waste output due to the fact that some of their goods might perish if stored for too long.
goods. They can also be in process between different locations. Holding of inventories can cost a
Process costing is consisting of three ingredients which are direct materials, direct labor and manufacturing overhead. Direct material is the raw material which needs to produce a product, for example rubber for shoes, plastics for straws and etc. direct labor is a person who work and complete the product before it is completely produce. And manufacturing over head is about the indirect materials, indirect labor, and some indirect related to the factory.