Inventory value without using standards

Yahoo Archive
1
Looks like you've got chapter one written pretty well. Bean Counters just amaze me.

Troy Funte
Liberty Electronics
----- Original Message -----
From: Cameron A. Janish
To: vantage@yahoogroups.com
Sent: Thursday, October 18, 2001 2:09 PM
Subject: RE: [Vantage] Inventory value without using standards.


I am sorry in advance it is me again. Why is your inventory off because you
sell reworked parts for more that 100 quantity parts. Inventory value is
based on the cost of the raw materials, labor, and burden not the selling
price. Also once you decide on a valuation method you use that consistently
from that point forward. Each inventory valuation method has a reason for
being selected and should be based on your raw material costs. You may use
different valuation methods for difference classes of inventory, but once
you select that it remains the valuation method.

Last cost is typically used in business, or for classes of raw materials,
where a large stock level is not kept in inventory available for production.
If your company orders just what it needs for a job or group of jobs, uses
that inventory and then goes on to order more inventory when preparing for
another order(s). Your last cost is the most accurate and applicable to
your production cycle. There is no inventory variance because the job gets
the cost that was purchased. When you run an Inventory Valuation Report
there should be very little of this type of material in inventory because
the majority of it's cost has been transferred to a job(s) or gone to Cost
of Goods when the job(s) where completed. Any variance between the
Inventory Valuation Report and the general ledger inventory account is
minimal. It is usually adjusted to Cost of Goods at year end.

Average cost, which is simple there is no complex average costs, is used
when raw materials change frequently in price because of wavering market
change, such as with metals or paper. It is used where the cost of one
order may be significantly different from the next and a consistent level of
inventory is maintained. In this case you want to normalize or make the
cost reflect the changes but only over a period of time because the highs
and lows average out to a somewhat consistent result. You also have fairly
quick turns of inventory based on your purchasing pattern. Frequent
purchases to maintain a stock level, then frequent usage for jobs. When you
print a Valuation Report the variance between that and the value in the
general ledger inventory account is taken to the Income Statement under Cost
of Goods and is absorbed there. This may be down for every financial
statements, quarterly, or for the final statement each year. It depends on
each business's policy, but is usually consistent.

Finally we have Standard cost, which is used in business where the cost of
raw material, or class of raw materials are fairly steady and/or quantities
are kept in inventory for long periods of time. You have little inventory
change. In this case you establish you Standard cost on an annual basis,
assign a cost to the raw materials and it does not change until you
revaluate the inventory, here again, usually annual. This makes your job
cost fairly consistent. Any changes in acquisition cost goes to a variance
account, on the cost of goods side of the income statement and is absorbed
there, but not reflected on each job, and not done on a job by job basis.
You print a inventory Valuation Report before your revaluation period. It
shows Last Cost, Average Cost, Standard Cost and you use that information to
calculate your new Standard Cost. Make the cost change to all parts that
are effected and the resulting variance is absorbed into the Income
Statement under Cost of Goods. This is done at year end.

In all three cases, once you have sent up your parts classes, parts, or
module to reflect you costing method you use an Inventory Valuation Report
which is based on your methodology to run the inventory value. This is used
to for evaluation of the state of inventory, to balance against the general
ledger inventory account prior to reconciling for preparation of financial
statements. Based on which method was selected, that determined the dollar
amount that went to WIP when material was issued to the job and then
ultimately what went to Cost of Goods when the job was completed and the
finished goods went to the customer or inventory depending on if it was made
to stock or order.

I hope this helps. Let me know if you need to know anything else and yes I
am writing a book. Sorry for the lecture, with any luck I will stay in my
cupboard longer next time.


Cameron A. Janish
Misha1
866-464-7421
cameron@...
-----Original Message-----
From: rjohnson@... [mailto:rjohnson@...]
Sent: Thursday, October 18, 2001 12:24 PM
To: vantage@yahoogroups.com
Subject: [Vantage] Inventory value without using standards.


We are having difficulty valuing inventory with our custom reports
because we can use last, average (only simple averages not weighted)
or standard. We typically use the simple average. However, that is
usually inaccurate because we might sell a single reworked part for
more money than a group of parts that are priced for 100 quanitiy.
The net result is inventory valuation that is way off. Any
suggestions or custom reports that people have used in situations
where standards are not utilized.

Many Thanks


Useful links for the Yahoo!Groups Vantage Board are: ( Note: You must
have already linked your email address to a yahoo id to enable access. )
(1) To access the Files Section of our Yahoo!Group for Report Builder and
Crystal Reports and other 'goodies', please goto:
http://groups.yahoo.com/group/vantage/files/.
(2) To search through old msg's goto:
http://groups.yahoo.com/group/vantage/messages
(3) To view links to Vendors that provide Vantage services goto:
http://groups.yahoo.com/group/vantage/links

Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service.



[Non-text portions of this message have been removed]


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Useful links for the Yahoo!Groups Vantage Board are: ( Note: You must have already linked your email address to a yahoo id to enable access. )
(1) To access the Files Section of our Yahoo!Group for Report Builder and Crystal Reports and other 'goodies', please goto: http://groups.yahoo.com/group/vantage/files/.
(2) To search through old msg's goto: http://groups.yahoo.com/group/vantage/messages
(3) To view links to Vendors that provide Vantage services goto: http://groups.yahoo.com/group/vantage/links

Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service.



[Non-text portions of this message have been removed]
2
We are having difficulty valuing inventory with our custom reports
because we can use last, average (only simple averages not weighted)
or standard. We typically use the simple average. However, that is
usually inaccurate because we might sell a single reworked part for
more money than a group of parts that are priced for 100 quanitiy.
The net result is inventory valuation that is way off. Any
suggestions or custom reports that people have used in situations
where standards are not utilized.

Many Thanks
3
I am sorry in advance it is me again. Why is your inventory off because you
sell reworked parts for more that 100 quantity parts. Inventory value is
based on the cost of the raw materials, labor, and burden not the selling
price. Also once you decide on a valuation method you use that consistently
from that point forward. Each inventory valuation method has a reason for
being selected and should be based on your raw material costs. You may use
different valuation methods for difference classes of inventory, but once
you select that it remains the valuation method.

Last cost is typically used in business, or for classes of raw materials,
where a large stock level is not kept in inventory available for production.
If your company orders just what it needs for a job or group of jobs, uses
that inventory and then goes on to order more inventory when preparing for
another order(s). Your last cost is the most accurate and applicable to
your production cycle. There is no inventory variance because the job gets
the cost that was purchased. When you run an Inventory Valuation Report
there should be very little of this type of material in inventory because
the majority of it's cost has been transferred to a job(s) or gone to Cost
of Goods when the job(s) where completed. Any variance between the
Inventory Valuation Report and the general ledger inventory account is
minimal. It is usually adjusted to Cost of Goods at year end.

Average cost, which is simple there is no complex average costs, is used
when raw materials change frequently in price because of wavering market
change, such as with metals or paper. It is used where the cost of one
order may be significantly different from the next and a consistent level of
inventory is maintained. In this case you want to normalize or make the
cost reflect the changes but only over a period of time because the highs
and lows average out to a somewhat consistent result. You also have fairly
quick turns of inventory based on your purchasing pattern. Frequent
purchases to maintain a stock level, then frequent usage for jobs. When you
print a Valuation Report the variance between that and the value in the
general ledger inventory account is taken to the Income Statement under Cost
of Goods and is absorbed there. This may be down for every financial
statements, quarterly, or for the final statement each year. It depends on
each business's policy, but is usually consistent.

Finally we have Standard cost, which is used in business where the cost of
raw material, or class of raw materials are fairly steady and/or quantities
are kept in inventory for long periods of time. You have little inventory
change. In this case you establish you Standard cost on an annual basis,
assign a cost to the raw materials and it does not change until you
revaluate the inventory, here again, usually annual. This makes your job
cost fairly consistent. Any changes in acquisition cost goes to a variance
account, on the cost of goods side of the income statement and is absorbed
there, but not reflected on each job, and not done on a job by job basis.
You print a inventory Valuation Report before your revaluation period. It
shows Last Cost, Average Cost, Standard Cost and you use that information to
calculate your new Standard Cost. Make the cost change to all parts that
are effected and the resulting variance is absorbed into the Income
Statement under Cost of Goods. This is done at year end.

In all three cases, once you have sent up your parts classes, parts, or
module to reflect you costing method you use an Inventory Valuation Report
which is based on your methodology to run the inventory value. This is used
to for evaluation of the state of inventory, to balance against the general
ledger inventory account prior to reconciling for preparation of financial
statements. Based on which method was selected, that determined the dollar
amount that went to WIP when material was issued to the job and then
ultimately what went to Cost of Goods when the job was completed and the
finished goods went to the customer or inventory depending on if it was made
to stock or order.

I hope this helps. Let me know if you need to know anything else and yes I
am writing a book. Sorry for the lecture, with any luck I will stay in my
cupboard longer next time.


Cameron A. Janish
Misha1
866-464-7421
cameron@...
-----Original Message-----
From: rjohnson@... [mailto:rjohnson@...]
Sent: Thursday, October 18, 2001 12:24 PM
To: vantage@yahoogroups.com
Subject: [Vantage] Inventory value without using standards.


We are having difficulty valuing inventory with our custom reports
because we can use last, average (only simple averages not weighted)
or standard. We typically use the simple average. However, that is
usually inaccurate because we might sell a single reworked part for
more money than a group of parts that are priced for 100 quanitiy.
The net result is inventory valuation that is way off. Any
suggestions or custom reports that people have used in situations
where standards are not utilized.

Many Thanks


Useful links for the Yahoo!Groups Vantage Board are: ( Note: You must
have already linked your email address to a yahoo id to enable access. )
(1) To access the Files Section of our Yahoo!Group for Report Builder and
Crystal Reports and other 'goodies', please goto:
http://groups.yahoo.com/group/vantage/files/.
(2) To search through old msg's goto:
http://groups.yahoo.com/group/vantage/messages
(3) To view links to Vendors that provide Vantage services goto:
http://groups.yahoo.com/group/vantage/links

Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service.



[Non-text portions of this message have been removed]
4
Cameron:

What would we do if you never came out of your cupboard? Thanks for that
very clear explanation of costing.

Lydia