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Chapter 7 - Reporting and interpreting cost of goods sold and inventory. After studying this chapter, you should be able to: Apply the cost principle to identify the amounts that should be included in inventory and the matching principle to determine cost of goods sold for typical retailers, wholesalers, and manufacturers; report inventory and cost of goods sold using the four inventory costing methods; decide when the use of different inventory costing methods is beneficial to a company. | Chapter 7 Reporting and interpreting cost of goods sold and inventory McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory Understanding the Business Provide sufficient quantities of high-quality inventory. Minimize the costs of carrying inventory. Primary Goals of Inventory Management The primary goals of inventory management are to have sufficient quantities of high-quality inventory available to serve customers’ needs while minimizing the costs of carrying inventory such as production, storage, obsolescence, and financing. Low quality inventory leads to customer dissatisfaction, returns, and decline in future sales. Also, purchasing or producing too few units can cause stock-outs that mean lost sales revenue and decreased customer satisfaction. Conversely, purchasing too many units increases storage costs as well as interest costs to finance the purchases. It may even lead to losses if the merchandise cannot be sold at normal prices. Items Included in Inventory Raw Materials Work in Process Finished Goods Merchandise Inventory Merchandisers Manufacturing Inventory is tangible property held for sale in the normal course of business or used in producing goods or services for sale. Merchandisers (wholesale or retail businesses) hold merchandise inventory, which is goods (or merchandise) held for resale in the normal course of business. The goods usually are acquired in a finished condition and are ready for sale without further processing. Manufacturing businesses hold three types of inventory: Raw materials inventory: Items acquired for processing into finished goods. These items are included in raw materials inventory until they are used, at which point they become part of work in process inventory. Work in process inventory: Goods in the process of being manufactured but not yet complete. When completed, work in process inventory becomes finished goods . | Chapter 7 Reporting and interpreting cost of goods sold and inventory McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory Understanding the Business Provide sufficient quantities of high-quality inventory. Minimize the costs of carrying inventory. Primary Goals of Inventory Management The primary goals of inventory management are to have sufficient quantities of high-quality inventory available to serve customers’ needs while minimizing the costs of carrying inventory such as production, storage, obsolescence, and financing. Low quality inventory leads to customer dissatisfaction, returns, and decline in future sales. Also, purchasing or producing too few units can cause stock-outs that mean lost sales revenue and decreased customer satisfaction. Conversely, purchasing too many units increases storage costs as well as interest costs to finance the purchases. It may even lead .
