LECTURES 14 and 15 - Inventory WebCT

LECTURES 14 and 15 - Inventory WebCT - LECTURES 14 & 15...

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MGCR 211
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Overview Importance Components Valuation criteria Inventory systems Cost flow assumptions Inventory estimations Internal Controls
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Importance Inventory is at the core of many businesses Inventory includes many costs : direct & indirect Proper tracking helps management make business decision and monitor profitability
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Inventory - Definition Item purchased by a company for re-sale to customer Depending on company, item purchased can be produced, modified or sold as is. Company will re-sell item to customer by charging a profit. Until sold, inventory is an asset. Once sold, inventory is a Cost of Good Sold
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Valuation Historical Cost Cost at the date inventory was acquired No estimates or bias No adjustment if value of the inventory goes up
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Valuation Market Value How can you define market value for inventory? Sales price (retail price) Defined by the market Replacement cost Cost to reproduce or replace the item in inventory given the market conditions today. Net realizable value (NRV) Amount that can be realized from the sale of the product in question
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Valuation IFRS Indicates that inventory should be recognized at Lower of Cost or NRV In line with principle of being conservative Reduces the amount of bias or estimates that are included in the inventory figure Challenge is now to determine what should be included in Cost.
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Cost Which of the following costs should be included in Inventory Cost? Production of the CD includes the following costs: Recruitment and finding a singer Cost of the CD CD costs itself Transportation from supplier to production facility Transportation to get CD to warehouse Cost of the packaging
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This note was uploaded on 11/23/2011 for the course MGCR 2049 taught by Professor Edwardbierbrier during the Fall '10 term at McGill.

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LECTURES 14 and 15 - Inventory WebCT - LECTURES 14 & 15...

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