320 Lesson 6c

320 Lesson 6c - Week6 Inventoriesand Costofsales 1 2 Types...

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Inventories and Cost of sales Week 6 1
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Types of Inventory Merchandising Manufacturing merchandise finished goods inventory work in process raw materials production supplies Contracts in process Supplies inventory 2
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Management concerns revenue earning component sensitivity to economic conditions critical nature of ‘price’ protection/control of the goods want to: minimize: obsolescence, over/under stocking, spoilage, damage, theft maximize: sales techniques, inventory management, market share, brand loyalty 3
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Items and costs to be included in inventory All goods for sale or reuse regardless of location goods purchased and in transit if title has passed FOB shipping point FOB destination goods owned but out on consignment BUT not goods on consignment that the entity is selling for someone else ALSO not count goods received from a supplier but tagged for return to the supplier Do E84 4
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Special sales agreements Sales with buyback agreement agree to sell and then buy back at fixed prices on a specific date – if buyer does not sell the goods, they can be returned to the seller e.g. book publishing inventory must remain on sellers books until it is known how many goods will be bought back can recognize sale if returns can be reasonably estimated may need to look beyond legal ownership 5
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Sale with buyback agreement Hill sells inventory to Chase agrees to re-purchase at specified price over specified time Chase borrows against inventory and remits to Hill Cash Hill buys back inventory Chase uses proceeds to pay off loan financing no liability assets up loan will be paid 6
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all cost incurred to bring the inventories to their present location and condition purchase costs, excise costs, transportation costs, insurance, storage, handling costs, costs to assemble [transportation often listed separately because of the difficulty of allocating it among pieces of inventory] cash discounts (2/10, net 30) inventory should be recorded at the lower (discount taken) price. If discount not taken, the extra (to reach gross price) is recognized as a financing cost many companies, however, do record at gross with purchase discount if taken Do BE8-4 7
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This note was uploaded on 03/15/2012 for the course BUS 320 taught by Professor Maureenfizzell during the Spring '12 term at Simon Fraser.

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320 Lesson 6c - Week6 Inventoriesand Costofsales 1 2 Types...

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