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Chapter 2 (Key Terms (Issuing of materials Goods Methods (LIFO (Last In,…

- - - - Last In, Last Out = Methods of attaching a value to each issue of material using the most recent cost price first
    - - Average Cost = Method of attaching a value to each issue of material using a weighted average of the cost prices of all items in inventory at the date of issue
    - - First In, First Out = Method of attaching a value to each issue of material using the oldest price first
  - - - Method of recording inventory data in order to ascertain the cost of which materials are issued and to ascertain a valuation of closing inventory
    - - Number of items held x inventory valuation per item
    - - Records held for each inventory item which shows receipts of supplies and sales
- - - - This costs the business money
  - - - Goods for sale; bought from a manufacturer to sell to their customers
        
        Retailers; supermarkets will have cans of orange drink ready for sale
        
        Wholesalers; a timber merchant will have quantities of wood for sale to customers.
    - - Organisations like college there will be paper ready for use in a printer
      - Are for use in the organisation or for sale to the customers as part of a service deal
      - Items for sale at an opticians, they will sell you glasses after doing an eye test.
    - - Work-in-progress
        
        Part finished goods on the production line
        
        IN car factories these would be cars on the line being assembled but not at the end.
      - Finished Goods
        
        Goods that have been completed and are ready for sale.
        
        Completed cars ready for sale by a vehicle manufacturer
      - Raw materials and components
        
        Inventories are held to reduce risk of production delays if a supplier fails to deliver on time.
        
        A vehicle business may hold components ready to be used.
- - - - Debit Inventory ( Asset gained )
      - Credit Bank ( Value given by Bank)
    - - Debit production ( asset of materials gained)
      - Credit Inventory ( value of materials given to production)
    - - Debit Inventory (asset gained)
      - Credit Trade Payable Control ( Liability Incurred )
    - - Debit Inventory (asset gained)
      - Credit Production ( value given by production)
- - - - Financed by possibly borrowing money ( interest payable)
      - Storage costs, including rent, rates security and insurance
  - - - Favoured by manufacturing businesses where supplies are delivered to the production line just as they are needed.
      - For this to operate efficiently, quality suppliers are needed who can be contracted to deliver goods to accordance with manufacturing scheduals.
      - Inventory levels are kept very low this way
    - - Needs to calculate when to order inventory, and how much to order. Formulas can be used for this.
    - - Records receipt and issue of inventory as the item passes in and out of the business, and re-orders are made accordingly
      - Inventory records are often kept on a computer file activated by the reading of bar codes
        
        Many Super markets use this system
- - - - (average usage x average lead time) / inventory buffer
    - - re-order level - ( average usage x average lead time)
    - - maximum inventory level - inventory buffer
      - re-order level - inventory buffer = minimum
  - - - If spare parts are kept for a particular make and model of vehicle, the inventory levels will need to be run down when the vehicles are being replaced by those of a differnt make and model
    - - A business using oil for heating may be offered a cheaper price when usage is low in the summer which may maje it worthwhile to buy : by contract when usage is high in the winter, the suppliers prices and lead times may vary
    - - If an inventory item is being used less frequently than before, the calculations will need to be revised to suit the current and future needs.
- - - - The first ( oldest ) cost prices are used first when goods are issued from stores. This means that the remaining inventory is valued at the most recent cost prices
    - - weighting average costs = total cost pf inventory held/ number of items held
      - Then used to attach a value to issues from stores.
      - Must be calculated again each time another purchase is made
    - - Most recent cost prices are used first when goods are issued from store meaning the remaining inventory is valued at the oldest cost price
- - - - Direct Labour
      - Direct Expenses
      - Direct Materials
      - Production Overheads
    - - Cost
      - Net Realisable Value