Most of the companies that are dealing with physical product trading businesses will realize the importance of inventories for their business. The reason why the inventories play an important role in business is that for those businessmen, the inventory is the key to generate revenue for their business and also inventory can be counted as major investment businesses in their daily routine. Thus, the inventory should be managed under proper inventories valuation method which is FIFO ‘first in first out’ and WAC ‘weighted average cost’ method that we study in this syllabus.
Inventory is an asset of a company which can be categorize into raw material which act as an unprocessed material, work in process which is considered as product of company that wasn’t complete but was counted in the inventory and was ready for sale once the product completed, and also the finished good that was completed in manufacturing process and ready for sale. In fact inventory is goods that being held for sale at a given time period. Inventories play an important role in business because it was the primary sources to generate revenue for the business.
Mostly the inventories are managed under the FIFO ‘first in first out’ and WAC ‘weighted average cost’ method. The FIFO method is applied by issuing the product that we first purchase then follow by others. WAC method is measure by dividing the total cost of goods available for sale by total units of goods available for sale.
Cost is a type of expenditure, the amount of money or use of property to acquire or produce a product or services. Cost can be classified into material cost, labor cost, expenses cost, variable cost and fixed cost. Material cost is cost of raw material or component being use in manufacturing production, labor cost are cost of employee, wages and salaries, expenses cost are cost that occur which cannot be included in material and labor, variable cost varies directly with the level of