What Are Deferred Acquisition Costs?

Inventory cost is the various expenses incurred during the ordering, purchase and storage of inventory, as well as the economic losses caused by inventory shortage. It generally includes:

Inventory cost

it includes:
(1) Invoice price (price list price minus commercial discount) minus the commodity purchase
(1) Purchase cost
(2) Processing costs
(3) Other costs
In the enterprise, for convenience, the same inventory is often piled together, without asking when and where they were purchased. In fact, in the real world, prices are ever-changing, and the purchase price of the same type of inventory purchased in different batches often occurs. Therefore, a problem inevitably arises: the company calculates the goods issued or the ending inventory. What is the basis for the unit price?
There are usually four ways to determine the cost of sending goods, which are called specific identification,
1. First-in-first-out method: The first-in-first-out method is that the inventory purchased first is shipped first, and its cost belongs to the physical cost. The cost price should be automatically analyzed by the computer during computer processing, and its unit cost price should not be modifiable. When shipping, the user only enters the shipment quantity, and does not enter the cost unit price, and the computer automatically analyzes to obtain the cost unit price. To this end, the computer must record the purchase quantity and cost amount in chronological order. The shipping cost of this method is determined according to the earliest purchase price. Users cannot arbitrarily select the inventory price to affect the current profit. Therefore, the inventory cost is closest to the current market price and can better reflect the value of the balance sheet inventory.
2. Last-in, first-out method: Last-in, first-out method is the first-in, first-out method of inventory delivery. The cost should be obtained through automatic computer analysis, and its unit cost price should not be modifiable. To this end, the computer must record the purchase quantity and cost in chronological order. The user enters the shipment quantity at the time of shipment. The cost unit price is not entered. The computer analyzes the cost in the reverse order of the FIFO method. The shipping cost of this method is determined based on the most recent purchase price, and users cannot arbitrarily select inventory pricing to affect current profits. Since the price in the later period may be higher than that in the earlier period under normal circumstances, the cost of pricing may be higher, which can reduce the profit for the period, but this method is also in line with the principle of accounting robustness.
3. Individual pricing method: The individual pricing method is used to individually value the shipping cost, which is suitable for cost-sensitive enterprises, such as large hospitals. After the inventory department purchases the inventory, it must be used by each department, and the cost accounting is more stringent. Under the circumstances, the cost of receipt of each department is directly linked to the benefit bonus. At this time, the cost must be individually priced, that is, the price of the product required by the department must be priced. In computer processing, users must be able to enter both quantity and cost unit price. This method is the closest to the principle of cost-based accounting, but it is relatively complicated. Even if a computer is used, the workload may be relatively large. It is suitable for inventory that is generally not interchangeable or easy to identify, the number of inventory types is small, and the unit Higher priced products.
4. Weighted average method: It is a one-time weighted average method for the whole month. It calculates the monthly weighted average unit price of the inventory at the end of the month based on the amount of inventory at the beginning of the period and the inventory and income cost of the current period. The cost of inventories issued and the cost of closing inventories are scheduled. This method must reach the end of the month to obtain the cost price, which runs counter to the management characteristics of a computer that is immediately available, so there is no need to adopt its management.
5. Moving weighted average method: This method is a method commonly used in computer software design because of its simplicity. When designing inventory management programs, software engineers may not know the accounting name of this management method, but both Management ideas using this method. According to this method, the computer increases the inventory inventory and inventory amount when entering the warehouse, and divides the inventory amount by the inventory quantity when it is out of the warehouse. This method is a very tedious method under manual management, but it is the easiest method for programming under computer management. Therefore, most software vendors use this method as the main method of inventory management.
6. Planned cost method: This method measures according to the planned cost. The unit's planned cost of the product is set on each product, and the cost is automatically obtained by the computer when it leaves the warehouse. The establishment of the planned cost amount under the planned cost method requires considerable operability and must be based on sufficient research to make it fully feasible, but the established planned inventory cost often becomes less and less operable with time. Therefore, it is rare in inventory management software and actual management work.
7. Gross profit method: The gross profit method is a method of calculating the gross profit for the current period based on the current period's net sales multiplied by the actual (or current plan) gross profit for the previous period, and then calculating the cost of inventories issued and ending inventory. In this method, the computer calculates the gross margin of the previous period, and then calculates the shipping cost. The user only needs to enter the quantity.
[Example]: A company's A-type inventory products were 60,000 yuan in early April 2010, 50,000 yuan was purchased in April, and sales revenue was 121,000 yuan in April. The sales returns and sales discounts occurred were 11,000 yuan. With a gross profit margin of 20%, the cost of goods sold and stocked in April is calculated as follows:
Net sales in April = 121000-11000 = 110000 (yuan)
Sales gross profit = 110000 × 20% = 22000 (yuan)
Cost of sales in April = 110000-22000 = 88000 (yuan)
Cost of inventory goods = 60000 + 50000-88000 = 22000 (yuan)
8. Retail price method: The retail price method refers to a method of calculating the cost of inventory at the end of the period using the percentage of the retail price. This method has the same disadvantages as the weighted average method. It is a management method that estimates the beginning of the month from the end of the month and is not suitable for computer processing.

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