Inventory Decision-Making

management accounting | 195. Inventory Decision-Making To be successful, most businesses other than service businesses are required to carry Inventory . In these businesses, good management of Inventory is essential. The management of Inventory requires a number of decisions. Poor decision making regarding Inventory can cause: 1. Loss of sales because of stock outs. 2. Depending on circumstances, inadequate production for a period of time. 3. Increases in operating expenses due to unnecessary carrying costs or loss from discarding obsolete Inventory . 4. An increase in the per unit cost of finished goods. Of all the activities in a manufacturing business, Inventory creation is the most dynamic and certainly the most visible activity. In one sense, Inventory involves all production activity from the purchase of raw materials to the delivery of finished goods Inventory to the customer. The financial accounting for Inventory is concerned primarily with determining the correct count and the assignment of historical cost.

Also, the use of direct costing rather than absorption costing can affect net income as discussed in chapter 6. From a management accounting viewpoint, there are variety of inventory decisions that affect net income. Decisions regarding inventory can be placed in two general categories: (1) those decisions that affect the quantity

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  Management, Chapter, Accounting, Costing, Management accounting

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