The following factors may influence a company's choice of inventory cost flow assumption:
- tax implications of choice
- financial statement effect
- actual physical flow of inventory
What is inventory cost?
- Inventory costs include all costs associated with ordering, holding, and managing inventory or inventories for a product-based business.
- Total inventory costs often fall into three categories: Order costs, storage costs, inventory costs.
- Warehousing costs include the costs of storing, transporting, and handling inventory, as well as the labor costs associated with these processes.
- This also includes taxes, insurance, item replacement, depreciation, and opportunity costs.
- To calculate your inventory holding cost, divide your inventory holding total by your total inventory value and multiply by 100 to get a percentage of your total inventory value.
- The total inventory value is the inventory cost multiplied by the available inventory.
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