Inventory Management Formula And Notes + Exercise [2080 Updated]

 Introduction

Inventory involves size or level of size that a firm maintains to meet its future requirement for production and sale. The basic reason for holding inventory is to maintain uniformity in production activities. In case of manufacturing concern, Inventories link the production and sale. Trading organizations are involved in buying and selling of goods. Invesment or Inventory invovles certain risk and costs. Therefore, the invontery manager should maintain optiomal Size or level of inventory without hampering production or sales needs.

Concept and Meaning Of inventory Management

Inventory management is The process of proper handling of inventory or stock. Materials cover maximum portion of cost for product and services. Therefore, it is essential to take necessary measures for proper handling and use of raw materials, which is the part of inventory management

Solution Of  Accounting For Inventory

Types Of Inventories

Raw Material

Raw material is essential components for factor of production. In manufacturing sector it covers maximum portion cost of production. The quality of finished goods depend on quality of raw material.

Work-in-progress

The worker in progress is the semi-finished goods. For conversion of raw material to finished goods depends on quality of raw material.

Finished Goods

Finished goods are also known as useable products. After processing raw materials into different steps as specificed by the production engineer, finished goods are obtained. The quality of finished goods added the value of production process.

Stock Level
 Stock Position in account refers to the  volume of goods or accoutrements  that a company holds at a particular point in time. It's an important aspect of  force  operation and  fiscal reporting. Stock  situations are  generally measured in terms of units or value and are used to track and control  force within a business. 

 There are different types of stock  situations that companies cover, including 

1. Minimum Stock Level

This is the  minimal  volume of  force that a company needs to have on hand to avoid stockouts and maintain smooth operations. It acts as a buffer to cover  unanticipated increases in demand or detainments in  force.

2. Maximum Stock Level

This represents the upper limit or threshold beyond which the company doesn't want to exceed its  force  situations. It helps  help  inordinate holding costs and reduces the  threat of fustiness or deterioration of stock.

3. Reorder Point

The reorder point is the  force  position at which a new order should be placed to replenish stock before it reaches the  minimal stock  position. It takes into account lead time( the time it takes to admit the order) and demand during that period.

4. Economic Order Quantity( EOQ)

The EOQ is the optimal order  volume that minimizes total  force costs, including holding costs and ordering costs. It considers factors  similar as carrying costs, stockouts, and order processing charges to determine the most cost-effective  volume to order.   Managing stock  situations effectively is  pivotal for businesses to meet  client demand while minimizing carrying costs and the  threat of stockouts. Accurate  shadowing of stock  situations is essential for  fiscal reporting purposes,  similar as determining the value of  force on the balance  distance and calculating the cost of goods  vended( COGS) for the income statement.

Account systems  generally  give mechanisms to record and cover stock  situations. These systems  frequently integrate with  force  operation software, allowing businesses to track stock movements, calculate reorder points, and  induce reports on stock  situations and valuation.