Inventory Costing

⚠️ **Finance warning / Avertissement finance** : informational only, not investment advice. Inventory is usually the largest number a reviewer will challenge: absorbing overhead at the wrong capacity inflates unit costs and profit, a skipped write-down overstates assets, there is a real risk of loss in any reporting or pricing decision taken from wrong unit costs, and no output here is a promise of return. Curated by Skill Harbor: the inventory costing skill of GAJETOso/financeskills. Use it to value inventory, choose or apply a costing method, or handle write-downs under IAS 2 or ASC 330. The opening profile separates raw materials, work in progress, finished goods, spares and goods in transit (checked against shipping terms), names the method in use (FIFO, periodic or moving weighted average, standard cost, retail method, with LIFO flagged as US GAAP only and prohibited under IFRS), and fixes the cost components: purchase cost net of discounts and rebates plus import duties, non-recoverable taxes and freight in, conversion costs with fixed overhead absorbed at normal capacity, and the excluded list (abnormal waste, storage of finished goods, selling costs, administrative overhead, foreign exchange losses). The mechanics are explicit: FIFO sends the oldest costs to cost of sales and leaves inventory at recent costs, the moving weighted average recomputes after each receipt, and the same formula must apply to all inventories of a similar nature and use. Standard costing is permitted only where it approximates actual, with variances analyzed and material variances prorated back into inventory and cost of sales at period end, because expensing every favorable variance while capitalizing the unfavorable ones is named as a classic earnings management flag. Fixed overhead absorption is called the battleground it is: the rate is budgeted fixed production overhead over normal capacity, low production expenses the unabsorbed overhead immediately instead of inflating unit costs, and abnormally high production lowers the rate instead of over-absorbing. Write-downs follow the lower of cost and net realizable value rule item by item, net realizable value being the estimated selling price minus costs to complete and costs to sell, raw materials written down only when the finished product they feed is itself below cost, with IFRS reversals required when value recovers and US GAAP reversals prohibited. The deliverable is an inventory valuation memo: method and inputs with the normal capacity stated, the valuation schedule by category with code-verified math, the net realizable value tests and the obsolescence provision matrix (aging by movement, validated annually against actual scrappage), count adjustment handling, and the adjustment entries. From the GAJETOso/financeskills repository (MIT). Honest caveats: inventory values land in official financial statements, so have the method application and any write-down checked by a qualified professional before any official use; the quantities, cost records and normal capacity figure are yours to supply and to verify, and the shipped calculate.py script should recompute the formulas instead of mental arithmetic. Skill Harbor never reviews the code, review it yourself before use.