Chapter 8 - Inventories: Measurement. The goals of this chapter are: Explain the difference between a perpetual inventory system and a periodic inventory system, explain which physical quantities of goods should be included in inventory, determine the expenditures that should be included in the cost of inventory,. | Inventories: Measurement 8 Chapter 8: Inventories: Measurement. Inventory Those assets that a company: 2. Has in production (work in process) for future sale. 1. Intends to sell in the normal course of business. 3. Uses currently in the production of goods to be sold (raw materials). For an item to be classified as inventory, the company must intend to sell it in the normal course of business. The item is either produced by the company or purchased by a supplier for resale. Raw materials inventory consists of the items that will be used in the production process. Types of Inventories Merchandise Inventory Goods acquired for resale Manufacturing Inventory Raw Materials Work-in-Process Finished Goods Types of Inventory We will look at inventory for two classes of businesses. For merchandising companies like Wal-Mart, goods are acquired from a supplier for resale to the final consumer. In a manufacturing operation, the company normally has three inventories. The first is raw materials, which makes up the items that will be used in the production process. The second inventory is work-in-process that consists of items that are being worked on, but are not yet complete. Finished goods inventory consists of items that are available for sale. Inventory Cost Flows Raw Materials (1) $XX $XX (4) Work in Process Finished Goods Cost of Good Sold Direct Labor Manufacturing Overhead $XX $XX (7) $XX $XX (8) $XX (2) $XX $XX (5) (3) $XX $XX (6) Raw materials purchased Direct labor incurred Manufacturing overhead incurred Raw materials used Direct labor applied Manufacturing overhead applied Work in process transferred to finished goods Finished goods sold In this diagram, we see the typical inventory cost flow for a manufacturing company. The manufacturing company acquires raw materials, hires direct labor and incurs manufacturing overhead. As raw materials, direct labor and manufacturing overhead are used, they are transferred into work-in-process inventory. When an item in . | Inventories: Measurement 8 Chapter 8: Inventories: Measurement. Inventory Those assets that a company: 2. Has in production (work in process) for future sale. 1. Intends to sell in the normal course of business. 3. Uses currently in the production of goods to be sold (raw materials). For an item to be classified as inventory, the company must intend to sell it in the normal course of business. The item is either produced by the company or purchased by a supplier for resale. Raw materials inventory consists of the items that will be used in the production process. Types of Inventories Merchandise Inventory Goods acquired for resale Manufacturing Inventory Raw Materials Work-in-Process Finished Goods Types of Inventory We will look at inventory for two classes of businesses. For merchandising companies like Wal-Mart, goods are acquired from a supplier for resale to the final consumer. In a manufacturing operation, the company normally has three inventories. The first is raw materials, .
