In 2006 caterpillar had record exports profits and

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In 2006 Caterpillar had record exports, profits, and revenues. It would seem that things couldn’t be better. But industry analysts, as well as the company’s managers, thought otherwise. In order to maintain Caterpillar’s position as the industry leader, management began another major overhaul of inventory production and inventory management processes. The goal: Within four years the company wants to have cut the number of repairs in half, increased productivity by 20%, and increased inventory turnover by 40%. In short, Caterpillar’s ability to manage its inventory has been a key reason for its past success, and inventory management will very likely play a huge part in its ability to succeed in the future. The Navigator a19 Inside Chapter 6… How Wal-Mart Tracks Inventory (p. 251) Is LIFO Fair? (p. 262) All About You: Employee Theft—An Inside Job (p. 268) PDF Watermark Remover DEMO : Purchase from to remove the watermark
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CLASSIFYING INVENTORY Preview of Chapter 6 In the previous chapter, we discussed the accounting for merchandise inventory using a perpetual inventory system. In this chapter, we explain the methods used to calculate the cost of inventory on hand at the bal- ance sheet date and the cost of goods sold. The content and organization of this chapter are as follows. Classifying Inventory Finished goods Work in process Raw materials Inventory Costing Specific identification Cost flow assumptions Financial statement and tax effects Consistent use Lower-of-cost- or-market Determining Inventory Quantities Taking a physical inventory Determining ownership of goods Inventory Errors Income statement effects Balance sheet effects Statement Presentation and Analysis Presentation Analysis The Navigator a19 Reporting and Analyzing Inventory How a company classifies its inventory depends on whether the firm is a merchandiser or a manufacturer.In a merchandising company,such as those described in Chapter 5, inventory consists of many different items. For example, in a grocery store, canned goods, dairy products, meats, and produce are just a few of the inventory items on hand.These items have two common characteristics: (1) They are owned by the com- pany, and (2) they are in a form ready for sale to customers in the ordinary course of business. Thus, merchandisers need only one inventory classification, merchandise inventory , to describe the many different items that make up the total inventory. In a manufacturing company, some inventory may not yet be ready for sale.As a result, manufacturers usually classify inventory into three categories: finished goods, work in process, and raw materials. Finished goods inventory is manufac- tured items that are completed and ready for sale. Work in process is that portion of manufactured inventory that has been placed into the production process but is not yet complete. Raw materials are the basic goods that will be used in production but have not yet been placed into production.
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