Week 3 Merchandising Operations and Inventory Discussion Inventory Cost Flow Assumptions graded In this area we will talk about how companies determine the year end inventory value and cost of goods sold using one of the cost flow assumptions We will also discuss the impact of choosing a certain cost flow assumption on the tax liability and other financial statement numbers of a company Finally we will discuss how to analyze inventory numbers Why is inventory important for a business How is inventory different from other assets of the business Responses Responses are listed below in the following order response author and the date and time the response is posted Response Date Time Author W el co m e to w ee k 3 th re a de d di sc us si o ns Professor Wilson 3 10 2013 11 03 27 AM Class Welcome to week 3 threaded discussions To start the discussion with this thread please consider the following In this area we will talk about how companies determine the year end inventory value and cost of goods sold using one of the cost flow assumptions We will also discuss the impact of choosing a certain cost flow assumption on the tax liability and other financial statement numbers of a company Finally we will discuss how to analyze inventory numbers Why is inventory important for a business How is inventory different from other assets of the business Prof Wilson R E W el c o m e to w ee k 3 th re a d e d di sc u ss io n s Geri Waldbillig 3 17 2013 12 47 37 PM Why inventory is important Inventory is a current asset on your company s balance sheet More important it is a major part of your ongoing business operations For manufacturers inventory includes raw materials used to make and assemble products For resellers it includes products you acquire to resell to customers In either case you need inventory to earn revenue Kohkimuller Neil Why Is Inventory Important for a Business Azcentral com Retrieved March 17 2013 from http yourbusiness azcentral com inventory important business 2957 html How inventory differs from other assets of the business General Asset Differences As a current asset inventory is different from long term assets in that it is typically acquired and sold within twelve months Accounts receivable cash and other marketable securities are other examples of current assets The value of your current assets is compared with your short term debt using liquidity ratio calculations The current ratio for instance compares all of your current assets to current debt A ratio above 1 to 1 is important to maintaining good liquidity Kohkimuller Neil How Is Inventory Different From Other Assets of the Business Azcentral com Retrieved March 17 2013 from http yourbusiness azcentral com inventory different other assets business 1778 html Currently I do not understand all of this but I am working on it Zach Monroe 3 17 2013 3 46 36 PM RE Welcome to week 3 threaded discussions Inventory is important for several reasons but in general it s important because it can effect so many other areas of the business if it isn t maintained and accounted for accurately Having some inventory on hand can be good because it s classified as an asset and can contribute to the overall worth of the company Company s can even use inventory as collateral to borrow money However having too much inventory on hand can actually be a bad thing Inventory that sits in warehouse for a long period of time has to be stored and maintained Plus inventory can always deteriorate or rust or can become obsolete if it s stored too long This is why some manufacturing companies use just in time production which allows them to keep a minimal amount of inventory This can be problematic too though Our book talks about Japanese auto makers using JIT that had to stop manufacturing because the company that provided them piston rings had to halt production because of an earthquake Even though the piston rings were relatively inexpensive the automakers couldn t manufacture vehicles without them and had to halt production as well because they weren t able to procure enough piston rings to continue To me these examples illustrate the importance of inventory and maintaining adequate inventory levels R E W el c o m e t o w e e k 3 t h r e a d e d d is c u ss io n s Joshua Roque 3 19 2013 12 50 12 PM Inventory is important various reasons within a business As stated in our first threaded discussion companies such as Macy s work and make their profits primarily based on the inventory they receive and the amount of goods that were bought and sold Inventory for an organization determines ultimately the amount of gross profit that was earned throughout the company By determining the amount of inventory an organization started with vs the amount of inventory that was sold bought one is able to determine how much profit was earned compared to how much was spend to purchase those items As Zach stated in the above post if a company has a large amount of inventory this can determine that the company at hand is not profiting This determination is based on the fact that they have been unable to release any of their inventry and instead have a build up Moreover a benefit of evaluting inventory is to evaluate different values of items that were bought and sold This is important because one can then determine which products in the future have been bought or sold more often than those that have not RE Welcome to week 3 threaded discussions Hi Pr Wilson and class Rachid Khalfaoui 3 17 2013 8 36 30 PM Inventory is treated as an asset on a company s balance sheet This means that it contributes to the company s equity It helps even when the company is not selling or it s not in use It s an important parameter for the eventual lenders to borrow money to the company Inventory management is important When an inventory is low it can leave a business vulnerable to an unanticipated increase in consumer demand Inventory control also is important it lets know how many products the company has how many sold how many stolen how many to buy when product is running low and how much money the company makes on selling product The cost of inventory is the expense used to calculate the gross profit By matching the correct inventory expense to the revenue earned a company can determine the gross profit Rachid R E W el c Darnell Flax 3 17 2013 8 59 20 PM o m e to w ee k 3 th re a d e d di sc u ss io n s Inventory is very important for a business because it gives a count of their current
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