ch 8 - 8 INVENTORIES: COST MEASUREMENT AND FLOW ASSUMPTIONS...

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Unformatted text preview: 8 INVENTORIES: COST MEASUREMENT AND FLOW ASSUMPTIONS CHAPTER OBJECTIVES After careful study of this chapter, students will be able to: 1. Describe how inventory accounts are classified. 2. Explain the uses of the perpetual and periodic inventory systems. 3. Identify how inventory quantities are determined. 4. Determine the cost of inventory. 5. Compute ending inventory and cost of goods sold under specific identification, FIFO, average cost, and LIFO. 6. Explain the conceptual issues regarding alternative inventory cost flow assumptions. 7. Understand dollar value LIFO. 8. Explain additional LIFO issues. 9. Understand inventory disclosures. 8-1 10. Record foreign currency transactions involving inventory (Appendix). 8-2 SYNOPSIS Classifications of Inventory 1. Inventories are the assets of a company which are (1) held for sale in the ordinary course of business, (2) in the process of production for sale, or (3) held for use in the production of goods or services to be made available for sale. A merchandising company needs only one type of inventory account, usually called merchandise inventory . Inventories of a manufacturing concern normally include raw materials , work in process , and finished goods . 2. Raw materials inventory includes the tangible goods acquired by a manufacturing concern for direct use in the production process. Incidental supplies which do not actually become a physical part of the finished product are normally recorded in a separate factory supplies, manufacturing supplies, or indirect materials account. 3. Work (or goods) in process inventory consists of the raw materials, direct labor, and manufacturing (factory) overhead costs for those products which are partially completed at the end of a period. Direct labor is the cost of the labor used directly in manufacturing the product. Manufacturing overhead includes variable costs, such as supplies and some indirect labor, and fixed costs, such as insurance, utilities, and depreciation on production assets. 4. Finished goods inventory includes the completed manufactured products awaiting sale and contains the same cost components as the goods in process inventory. Perpetual and Periodic Inventory Systems 5. A perpetual inventory system provides for a continuous record of physical quantities in the inventory. Such a system is essential to maintain effective planning and control by management over inventory and to avoid stockouts. A perpetual inventory system may keep track of units only or can be maintained for both costs and units . Comprehensive perpetual systems are increasingly ....
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This note was uploaded on 06/11/2008 for the course ACCT 3023 taught by Professor Fasci during the Spring '08 term at The University of Texas at San Antonio- San Antonio.

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ch 8 - 8 INVENTORIES: COST MEASUREMENT AND FLOW ASSUMPTIONS...

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