2. Inventory The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

3. Inventory Inventory refers to objects that are sold, distributed, or otherwise consumed by a company.

4. Why inventory in Business? There are many reasons for obtaining and holding inventory, and inventory can play a variety of roles within the life of any Business.

5. Business Inventories An economic figure that tracks the dollar amount of inventories held by retailers, wholesalers and manufacturers across the nation. Business inventories are essentially the amount of all products available to sell to other businesses and/or the end consumer. When tracked alongside a sales index, production activity in the near term can be predicted.

6. a tangible, physical item actually kept within the facility (“real life” or “shelf count”) an intangible item existing within the company’s records (“paper life” or “record count”). Inventory as Both a Tangible and an Intangible Object

7. Why do Companies hold Inventories Inventory is a necessary evil that every organization would have to maintain for various purposes. Optimum inventory management is the goal of every inventory planner. Over inventory or under inventory both cause financial impact and health of the business as well as effect business opportunities. Holding inventories help the companies remain independent and free from vendor dependencies.

8. Reasons why organizations maintain Raw Material Inventory Meet variation in Production Demand Cater to Cyclical and Seasonal Demand Economies of Scale in Procurement Take advantage of Price Increase and Quantity Discounts Reduce Transit Cost and Transit Times Long Lead and High demand items need to be held in Inventory

9. 1. Meet variation in Production Demand Production plan changes in response to the sales, estimates, orders and stocking patterns. Accordingly the demand for raw material supply for production varies with the product plan. Holding inventories at a nearby warehouse helps issue the required quantity and item to production just in time. Why do Companies hold Inventories

10. 2.Cater to Cyclical and Seasonal Demand Market demand and supplies are seasonal depending upon various factors like seasons; festivals etc., And past sales data help companies to anticipate a huge fluctuation of demand in the market well in advance. Accordingly they stock up raw materials and hold inventories to be able to increase production and rush supplies to the market to meet the increased demand. Why do Companies hold Inventories

11. 3.Economies of Scale in Procurement Buying raw materials in larger lot and holding inventory is found to be cheaper for the company than buying frequent small lots. In such cases one buys in bulk and holds inventories at the plant warehouse (stores). Why do Companies hold Inventories

12. 4.Take advantage of Price Increase and Quantity Discounts If there is a price increase expected few months down the line due to changes in demand and supply in the national or international market, impact of taxes and budgets etc., the company’s tend to buy raw materials in advance and hold stocks as a hedge against increased costs. Companies resort to buying in bulk and holding raw material inventories to take advantage of the quantity discounts offered by the supplier. In such cases the savings on account of the discount enjoyed would be substantially higher that of inventory carrying cost. Why do Companies hold Inventories

13. 5.Reduce Transit Cost and Transit Times In case of raw materials being imported from a foreign country or from a far away vendor within the country, one can save a lot in terms of transportation cost buy buying in bulk and transporting as a container load or a full truck load. Part shipments can be costlier. In terms of transit time too, transit time for full container shipment or a full truck load is direct and faster unlike part shipment load where the freight forwarder waits for other loads to fill the container which can take several weeks. Why do Companies hold Inventories

14. 6.Long Lead and High demand items need to be held in Inventory Often raw material supplies from vendors (sellers) have long lead running into several months. Coupled with this if the particular item is in high demand and short supply one can expect disruption of supplies. In such cases it is safer to hold inventories and have control. Why do Companies hold Inventories

15. Finished products: This is product ready for current customer sales. Raw materials: Used to produce partial products or completed goods. Work-in-processing: Items are considered to be WIP during the time raw material is being converted into partial product, subassemblies, and finished product. WIP should be kept to a minimum. categories of Inventory

16. Inventory as Money Because inventory is a money, you should care about the financial aspects of inventory?.

17. Ending Inventory There are three methods used when valuing the goods that you have on hand at the end of the period. 1. The First-In-First-Out Method (FIFO) 2. The Last-In-First-Out Method (LIFO) 3. The Weighted Average Cost Method The following example will illustrate this:

18. Example Ms. Cindy Sheppard runs a candy shop. She enters into the following transactions during July: July 1 Purchases 1,200 lollipops at $1 each. July 13 Purchases 500 lollipops at $1.20 each. July 14 Sells 700 lollipops at $2 each. First of all, how many lollipops does she have at the end of the month? Answer: ??? 1,200 + 500 – 700 = 1,000 lollipops Now, there are three ways that Ms. Sheppard could value her closing stock:

19. First-in, First-out (FIFO) This method assumes that the first inventories bought are the first ones to be sold, and that inventories bought later are sold later. The value of our closing inventories in this example would be calculated as follows: FIFO

20. Using the First-In-First-Out method, our closing inventory comes to $1,100. This equates to a cost of $1.10 per lollypop ($1,100/1,000 lollypops). subtract

21. the FIFO is probably the most commonly used method in small business.

22. 2. Last-in, First-out (LIFO) This method assumes that the last inventories bought are the first ones to be sold, and that inventories bought first are sold last. LIFO

23. The value of our closing inventories in this example would be calculated as follows: last bought are first sold 500 + 200 first last from Using the Last-In-First-Out method, our closing inventory comes to $1,000. This equates to a cost of $1.00 per lollypop ($1,000/1,000 lollypops). The LIFO method is commonly used in the U.S.A.

24. 3. The Weighted Average Cost Method: This method assumes that we sell all our inventories simultaneously. Average Cost = Total Cost of Goods ÷ Total Quantity of Goods Available for Sale Available for Sale WAC

25. The weighted average cost method is most commonly used in manufacturing businesses where inventories are piled or mixed together and cannot be differentiated, such as chemicals, oils, etc.

26. FIFO vs. LIFO vs. Average Cost Method of Inventory Valuation Assume the following inventory events: November 5 Purchased 800 widgets at $10.00/unit—Total cost $8,000 November 7 Purchased 300 widgets at $11.00/unit—Total cost $3,300 November 8 Purchased 320 widgets at $12.25/unit—Total cost $3,920 November 15 Purchased 200 widgets at $14.70/unit—Total cost $2,940 November 10 Sold 750 units of goods at $15.00/unit November 14 Sold 460 units of goods at $15.55/unit November 18 Sold 220 units of goods at $14.45/unit Not Important

27. Basic Events:

28. FIFO

29. LIFO

30. The Weighted Average Cost Method

31. Cost of Goods Sold

32. Assignment Jan. 1 Beginning Inventory 200Units @ $10$2,000 Mar. 14Purchase350Units @ $155,250 Jul. 30Purchase450Units @ $209,000 Oct. 26Purchase700Units @ $2517,500 Units Available 1,700Units Cost of Goods Available for Sale $33,750 Smith Company reported the following current-year data for its only product:

33. Smith resold its products at $40 per unit on the following dates: Jan. 10Sales100units Mar. 15Sales150units Oct. 5Sales310units Total Sales 560units Smith uses a perpetual inventory system. Determine the costs assigned to cost of goods sold and ending inventory using (a) FIFO and (b) LIFO (c) WAC Method