Operations managementLesson 2 of 3 in the course Depreciation and inventory

Inventory Management: Stock Types, Costs, Valuation, and Control

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Inventory is the goods and materials an organization holds for resale, production, or use. Understanding what counts as inventory—and why organizations keep it—helps explain how products move through a business and how stock decisions affect cost and customer service.

In a narrow business sense, inventory includes goods held for resale or materials used to make goods. The concept also includes work in process (WIP): work that has begun but is not yet complete. More broadly, inventory can mean all work in a production process before its completion.

All flashcards

Safety stock
Extra inventory held to reduce stockout risk from demand or supply fluctuations.
Pipeline stock
Goods already moving through distribution or otherwise in transit.
Holding cost
The cost of storing and protecting inventory, including space, insurance, handling, and obsolescence risks.
LIFO
An inventory costing method that assigns the most recently received units to goods sold first.
Throughput accounting
An approach that focuses on money generated from goods sold and its relation to operating expense and inventory.

Quiz questions

  1. Under a consignment arrangement, who retains ownership of goods held by another party until they are sold?Answer: The seller retains ownership until the goods are sold.
  2. What does cycle stock represent in inventory management?Answer: Inventory available for use in a batch process, excluding buffer stock.
  3. How is inventory turnover calculated for an accounting period?Answer: Cost of goods sold divided by average inventory.
  4. Under FIFO inventory costing, which units are treated as sold first?Answer: The earliest units received.
  5. What is the purpose of inventory credit?Answer: To use stored goods as collateral for financing.

Based on the Wikipedia article Inventory, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.

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