Please enable JavaScript.
Coggle requires JavaScript to display documents.
Inventory - Coggle Diagram
Inventory
-
-
-
Fixed production OHs
include indirect costs of production that remain irrespective of the production volume e.g. factory depreciation or cost of factory management/administration
-
FIFO
First in first out
Each item of inventory keeps its own valuation. When inventory is used, it is assumed that the first inventory collected is the first used, therefore the total value of inventory is reduced by the first valuation (if there are enough units) and so on
Costs of purchase
these include purchase price, import duties and other taxes (not recoverable from tax authority), handling costs and other costs directly attributable to the acquisition
Costs of conversion
these include direct costs to units being produced e.g. direct labour, and an allocation of fixed/variable OHs that are incurred in the converting of materials into finished goods
Variable production OHs
indirect costs of production that vary directly with the volume of production e.g. indirect material or labour costs
Weighted average
takes all different valuations of inventory to create a total valuation, before dividing by total units of inventory to leave an average cost per unit
Standard cost method
standard cost can be applied to all inventory, provided they are reasonable approximations of actual cost
Selling price less gross margin
add all selling prices of inventory together and takes the % of gross margin away from this total
Inventory valuing has an inherent issue that there is a direct link between valuation of closing inventory and profit; increasing closing inventory increases profit by the same amount