Know Everything About Inventory-Related Relevant Costs and Their Effects with Myhomeworkhelp.Com
Inventory is an integral part of every business. Having the right quantity of inventory is essential to the success of business depends on it.
Meaning of inventory
Stated in simple terms, inventory refers to stock of goods available with a firm. To ensure smooth functioning of manufacturing department, there should be sufficient quantity of raw materials in stock. Estimating inventory-related relevant costs and their effects homework help from myhomeworkhelp.com helps students to understand the meaning correctly.
Importance of right quantity of inventories
Keeping sufficient stock is as important as having money in hand. Shortage or excess of stock can have unfavorable consequences.
- Excess of inventory causes cash to be locked up unnecessarily.
- Shortage of inventories can disrupt production process.
- Stocking up perishable goods leads to wastage as they get damaged fast.
Knowing these will help in procuring estimating inventory-related relevant costs and their effects assignment help.
Inventory related costs
Costs associated with procurement and holding off of inventories can be mainly of three kinds.
Costs incurred for ordering and procuring inventory is called as ordering cost. It can be cost of ordering excess or ordering less. Both are opposites travel in opposite directions. Costs of making a purchase orders, checking goods when received, etc. form part of ordering costs.
After procuring inventories, they have to be stored till they are needed for production. Costs incurred for storing inventories is known as holding or carrying a cost. This includes warehouse rent, insurance charges, thecost of fire safety equipment, etc.
Stock out costs:
These are caused due to stock exhaustion. Not having sufficient stock can result in firms losing business opportunities. This cost is termed as stock out cost. Estimating inventory-related relevant costs and their effects homework help can be useful in understanding these terms.
Calculating value of current inventory
Ascertaining the actual cost of closing stock is important to find out profits. Gross profit way is the most common method of valuing inventories.
- Add the opening value of stock to value of purchases during the year.
- Calculate gross profit as a percentage of sales.
- Deduct gross profit from sales to get cost of goods sold.
- The difference between cost of goods sold and cost of goods available will be the value of closing stock.
Estimating inventory-related relevant costs and their effects assignment help can help students in solving problems related to these topics.
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