ORIE 3150 class notes September 21 2010

ORIE 3150 class notes September 21 2010 - 7:30 9:30 155 28...

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ORIE 3150 Inventory September 21, 2010 Prelim I will be held at 7:30 PM – 9:30 PM in Olin 155 on September 28. Closed book, closed notes. Coverage is Homework 1, 2, and 3. Homework #4 will be assigned next week and will be due October 5. A. Merchandise inventory is a current asset. B. The higher the value placed on ending inventory, the lower the cost of goods sold and the higher the gross margin and net income. Beginning inventory + Purchases (including freight-in expense) - Ending inventory Cost of goods sold. Net sales - Cost of goods sold - Total of other expenses Net income C. It is important to manage inventory levels, taking into consideration both the costs of handling, storage, and financing inventories and the cost of lost sales. D. Inventory cost includes purchase price less discounts, freight-in and insurance, and taxes and tariffs. It does not include freight-out, selling expenses, etc. E. Goods flow can be different from the flow of costs. For example, every beer distributor will try to sell the oldest beer first, before it expires. Rotating inventory is a major part of the beer distributor’s job. F. Cost flow is an assumption made about costs for accounting purposes. G. Recall: There are two inventory systems, periodic and perpetual. 1. In the periodic system, no detailed records of the actual inventory on hand are maintained during the period. We start the period with an accurate beginning merchandise inventory. Then we record the net cost of all purchases of merchandise during the period. The sum of these two figures is the goods available for sale. Beginning inventory + Purchases (including freight-in expense) Goods available for sale Then we find merchandise inventory at the end of the period (using records may be enough, but a physical count is best).
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Goods available for sale - Ending inventory Cost of goods sold. In the periodic inventory system, the inventory records are only up to date and correct at the end of each period. The cost of goods sold is only recorded at the end of each period.
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