(7) Inventory

(7) Inventory - Chapter 7 Inventory: Investment in...

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Chapter 7 – Inventory: Investment in inventory can be substantial so companies manage inventory levels to maximize their return and minimize costs Managing inventory inflows and outflows can be the difference in success/ failure Inventory has all the uncertainties that A/R has plus: o Uncertainty of finding buyers o Uncertainty of obsolescence/spoilage Ownership of inventories is evident by possession and legal title COGS represents the expense side of an inventory (recognized once the inventory is sold) The value assigned to inventory should contain all laid-down costs such as invoice price, tariffs, etc… Transportation in/Freight In Shipping costs Valuation Methods of Inventory: 1) Historical Cost o There is no recognition of changes in the inventory’s market value while it is held 2) Market Value o Replacement Cost – What it would cost the company to replace the product today (This is the same as historical cost at acquisition Unrealized increases/decreases in value are recognized) o Input/Entry Market Market in which the product was acquired o Output/Exit Market – Market in which companies sell their products o NRV (Exit Price) – amount that can be realized from the sale of a product (Selling price less the costs necessary to sell the item) 3)
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This note was uploaded on 09/12/2011 for the course MGCR 211 taught by Professor La rocca during the Fall '08 term at McGill.

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(7) Inventory - Chapter 7 Inventory: Investment in...

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