Inventory Valuation

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Chapter 8

• Inventory Valuation
• (pp281-286)

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Inventory valuation

• Accounting inventory system
• Inventory pricing system

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Accounting Inventory system

• Cost method
• Retail method

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Cost method

• Define the book valuation of inventory based on
  retailers cost freight
• Use for
• big ticket items
• limited sales/day
• Few price changes
• Low turnover
• Allows for price negotiation

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Cost method

• Coding the cost
• Using first 10 letters of alphabet
• ABCDEFGHIJ 1234567890
• Example
• HEAD 85.14 cost

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Cost method Limits

• Daily/monthly inventories difficult
• Costing out each sale difficult
• Allocating freight to each items cost hard

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Retail Method of IV

• Define Values mdse at current retail price
• Allows for detailed accounting
• Difficult to calculate cost of goods sold
• But is calculated, too
• 3 steps
• Cost complement
• Calculate reductions from retail value
• Convert adjusted retail book inventory to cost

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RETAIL METHOD - benefits

• Accounting statements drawn at anytime
• Physical Inventories
• neednt be taken for statements
• Are less subject to error
• Completed in a shorter time
• Provides a Ending inventory

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Retail method complaint

• A method of averages
• Huge bookkeeping responsibilities
• Errors do occur
• (shortages, overages human error)

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Inventory Pricing system

• LIFO Last in, First Out
• Matches current costs against current revenues
• Higher unit costs to mdse sold lower unit costs
  to unsold mdse
• Helps to counter inflationary periods
• FIFO First in, First Out
• Oldest mdse is sold before newer mdse

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Next chapter

• Merchanse Buying handling (Chapter 9)
• For Friday March 24 find an article
• Radio Frequency Identification Tags (RFID)
• Merchandise DIVERTERS
• Shoplifting shortages
• Review Social Accountability International
  Website www.cepaa.org
• SA8000 social accountability system