BUS 251 Chapter Notes - Chapter 7: Consignor, Consignee, Vote Counting
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15 Aug 2016
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Ch. 7 – Inventory
INTRODUCTION
- inventory = any item purchased by company for resale to customers/used in manufacture of product
that is then sold to customers
- all companies (except service businesses) have inventory
- merchandiser/retailer = purchase inventory from others to sell at profit
- manufacturer = companies that make products
- inventory usu most significant current asset
largest asset that will be converted to cash over next year
- management’s objective for inventory: sell it at higher price than company purchased it for
1) select suppliers
consider location, time, delivery
2) decide how much inventory to purchase from supplier
do not want too much (will become obsolete), but also want to meet customer demand
stockout = run out of particular item
3) set sale price so that it is high enough to provide profit for company while remaining
competitive w/ other companies selling same/similar products
4) implement safeguards to prevent damage & loss due to theft
TYPES OF INVENTORY
- raw materials = all items required to make product
- work-in-process = used to record costs of products that have been stared but not completed at end of
accounting period
incl. cost of raw materials, labour costs, overhead costs (other manufacturing costs) incurred as
product is being made
- finished goods = completed products
once manufacturing process complete, full cost of making product transferred from Work-in-
Process to Finished Goods account
- FOB (free on board) shipping point = buyer responsible for paying shipping & any other costs incurred
while goods in transit from seller’s premises to buyer’s
buyer owns inventory when leaves seller’s premises (shipping point) & buyer includes these
goods in inventory even though they haven’t arrived
- FOB destination = seller responsible for paying shipping & any other costs incurred while goods in
transit from seller’s premises to buyer’s
buyer does not own goods until reaches buyer’s premises (destination) & buyer does not record
inventory until it arrives
- consignment =consignor leaves used items w/ consignee
as item sells, consignee collects full payment but only earns commission, rest of balance to
consignor
these goods not part of inventory b/c they belong to consignor
INVENTORY SYSTEMS
- important that companies track inventory to know quantities of product on hand & quantities sold
management uses this info to make decisions about pricing, production, reordering
- cost of goods avail for sale (COGAS) = opening inventory + cost of purchases
cost of all goods company had avail to sell to its customers during period
determine how to allocate COGAS b/t cost of goods sold & cost of goods remaining in inventory
- periodic inventory sys = only update company’s inventory info periodically (once in a while)
updates only happen when company has physically counted its inventory
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