How to determine inventory cost, Accounting Basics

Assignment Help:

Q. How to determine inventory cost?

To place the proper evaluation on inventory a business must answer the question: Which costs must be included in inventory cost? After that when the business purchases identical goods at different costs it must answer the question: Which cost must be assigned to the items sold? In this section you study how accountants answer these questions.

The costs incorporated in inventory depend on two variables such as quantity and price. To turn up at a current inventory figure companies should begin with an accurate physical count of inventory items. They multiply the quantity of inventory with the unit cost to compute the cost of ending inventory. This section discusses the taking of a physical inventory and the methods of costing the physical inventory under both periodic and perpetual inventory procedures. The remainder of the section discusses departures from the cost basis of inventory measurement.

As briefly described in section to take a physical inventory a company have to weigh, count, measure or estimate the physical quantities of the goods on hand. For illustration a clothing store may count its suits a hardware store may weigh washers, bolts and nails and a gasoline company may measure gasoline in storage tanks and a lumberyard may estimate quantities of coal, lumber or other bulky materials. During the taking of a physical inventory the goal should be accuracy.


Related Discussions:- How to determine inventory cost

What is the typical time span for long-range plans?, What is the typical ti...

What is the typical time span for long-range plans? A. More than 1 year C. 3-5 years B. 2-3 years D. About 25 years

Explain the types of financial statements, Explain the types of Financial S...

Explain the types of Financial Statements Income Statement . This is a summary of a business's expenses and revenue for a specific period of time. It ONLY shows expenses and r

Common deductions from gross sales, Q. Common deductions from gross sales? ...

Q. Common deductions from gross sales? Generally sales are for cash or on account when a sale is for cash the debit is to Cash and the credit is to Sales. While a sale is on ac

What do you mean by salaries, Q. What do you mean by Salaries? The reco...

Q. What do you mean by Salaries? The recording of the payment of employee salaries typically involves a debit to an expense account and a credit to Cash. But for a company pays

Economic substance of the transaction, Q. Economic substance of the transac...

Q. Economic substance of the transaction? In a few business transactions the economic substance of the transaction conflicts with its legal form. For instance a contract that i

Accounts payable subsidiary ledger, An accounting ledger that reveals the t...

An accounting ledger that reveals the transaction history and amounts owed independently for each supplier from whom the business gets credit for purchases. The balance in the cust

What do you mean by net sales, Q. What do you mean by Net sales? We dem...

Q. What do you mean by Net sales? We demonstrate a condensed income statement to emphasize its major divisions. Next, we explain the more complete income statement actually pre

Significance of accounting standards, Significance of Accounting Standards:...

Significance of Accounting Standards: Setting of Standards is an effort to standardize the reporting of accounting information across the country and also transversely the glob

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd