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Understanding Inventory Classification and Valuation in Cost Accounting

This recap covers essential concepts in basic costing, specifically focusing on inventory classification and valuation methods. You'll learn to identify different types of inventory, including raw materials, work-in-progress (WIP), and finished goods. Discover the three primary stock valuation methods: LIFO (Last In, First Out), FIFO (First In, First Out), and AVCO (Average Cost). We also discuss perpetual inventory systems and record-keeping methods such as stock cards and stores ledger accounts crucial for effective cost management.

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Understanding Inventory Classification and Valuation in Cost Accounting

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  1. Level 2 Certificate in Accounting Basic Costing Recap Homework

  2. Basic Costing • Chapter 4 • Inventory Classification & Valuation

  3. Objectives • Identify the different types of stock: raw materials, part finished goods WIP, finished goods. • Explain the 3 different methods of stock valuation • Calculate stock valuations using appropriate methods

  4. Types of stock /inventories • Raw materials • WIP (Work in progress) • Finished Goods

  5. Stock (inventory) records Perpetual invoice system – updated with each stock movement There are 2 types of stock (inventory) records: - • Stock (Inventory) Cards • Stores Ledger Accounts/Stock record cards Either or both can be used

  6. Stock record cards (AKA Bin Cards)

  7. Stores Ledger Accounts or Stock (Inventory) record cards Similar to STOCK RECORD CARDS but • Cost details are recorded, so that the unit cost of each receipt and issue is shown. • The balance of stock is also valued. • These form part of the COST ACCOUNTING SYSTEM. • These are written up by an experienced cost bookkeeper.

  8. Materials requisition A MATERIALS REQUISITION is completed when materials are needed from stores by the production department. It is then used as a SOURCE DOCUMENT

  9. Stock valuation methods • LIFO (Last in first out) • FIFO (First in first out) • AVCO (Average weighted cost)

  10. Lets Practice

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