Inventory of raw material, Financial Accounting

Assignment Help:

1) Inventory of raw material are held to make sure that the production process is not disrupted because of shortage of raw material. The amount of raw material inventory would based upon the speed at that the raw material can be procured; the greater the speed and lower would be the stage of raw material inventory. Higher the improbability in the supply of raw material, higher would be the level of raw material inventory.

2) Work in process i.e. WIP inventories occur in the process of production. This type of inventories is also considered to as "Process Inventories". Under case of easy products the WIP inventories would be less, while in case of complex products needing various sub-processes and sub-assemblies the work in process inventory would be high.

3) Finished goods inventories are held to meet customer's need promptly. The quantum of finished services or goods inventory would based upon:

  • Time needed to fill an order from the customer. If the products is of that nature which any unexpected demand can be met at short notice the level of inventories would be lower, and
  • Variety of the product line: Firms selling a broad range of products normally need to invest more in finished goods.

4) Inventories are also conduct; hence the order cost is reduced.

5) Spares: An inventory of spare items which are required for the smooth running of business is also kept.

6) Transaction or Precautionary and Speculative Motives: Inventories that are held for conducting normal everyday business are termed as transaction inventory. Precautionary inventories are those inventories that are held to make sure that in case of shortage or adverse price movement, the production process will not be stopped because of the lack of inventory.


Related Discussions:- Inventory of raw material

Balance sheet, limitations of the balance sheet

limitations of the balance sheet

Net realizable value of the accounts receivable, After the accounts are adj...

After the accounts are adjusted at the end of the year, Accounts Receivable has a balance of $215,000, Uncollectible Accounts Expense has a balance of $17,500, and Allowance for Do

Steps required to do the arbitrage. , John Chan considers buying a six-mont...

John Chan considers buying a six-month stock futures contract on the shares of Li & Fung Limited. Shares of Li & Fung Limited are now trading at $50 per share and it is expected th

Lower of cost or market, Lower of Cost or Market - Valuing ASSETS for finan...

Lower of Cost or Market - Valuing ASSETS for financial reporting purposes. Normally‘cost' is the purchase price of the asset and ‘market' refers to its current replacement cost. GE

Changes in accounting estimates-financial statement, Changes in accounting ...

Changes in accounting estimates In preparing financial statements, it may be difficult to arrive at exact values for certain items to be presented in the financial statements and

Net cash provided by operating activities was?, 50. In preparing a company'...

50. In preparing a company's statement of cash flows for the most recent year on the indirect method, the following information is available: 52,000-Net income for the year 18,00

Describe how it is helpful for management decision makings, Question: (...

Question: (a) Describe how cost concepts and behavior can be important to Management. (b) What do you meant by "flexing" the Budget? Describe the importance of flexible bud

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