Inventory Management and Risk Management

Front

What is inventory management?

Back

The process of ordering, storing, using, and selling inventory (raw materials, components, and finished goods).

Front

What are the benefits of inventory management?

Back

Prevents shortages and overstocking, and helps businesses manage inventory effectively.

Front

What is the accounting treatment for inventory?

Back

Inventory is a current asset that must be physically counted before appearing on the balance sheet.

Front

What are the three main inventory valuation methods?

Back

FIFO (First In, First Out), LIFO (Last In, First Out), and Weighted Average.

Front

What does FIFO stand for and how does it work?

Back

FIFO stands for First In, First Out; it means the oldest inventory is sold first.

Front

What does LIFO stand for and how is it used?

Back

LIFO stands for Last In, First Out; it means the most recent inventory is sold first and is only allowed under GAAP in the U.S.

Front

What is the Weighted Average method of inventory valuation?

Back

Used when inventory items are indistinguishable; calculated as Total Units Available divided by Total Cost of Goods Available for Sale.

Front

What are the four categories of inventory?

Back

Raw Materials, Work in Process (WIP), Finished Goods, and Merchandise.

Front

What is Just-in-Time (JIT) inventory management?

Back

A method that minimizes inventory storage and was developed in Japan (Toyota).

Front

What is the risk associated with Just-in-Time (JIT) inventory management?

Back

Delays or demand surges can cause shortages.