What is Inventoriable Cost?

Formula

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Examples of Inventoriable Cost

Let’s take some examples for better understanding.

Example #1

ABC limited provides data related to manufacturing for March’19.

  • Raw Materials: $180,000Direct Wages: $90,000Machine Hours Worked (hour): $10,000Machine Hour Rate (per hour): $8Administration OH: $35,000Selling Overheads per Unit: $5Units Produced: 4000Units Sold: 3600Selling Price Per Unit: $125

Calculate the inventoriable cost and value of the closing stockValue Of The Closing StockClosing stock or inventory is the amount that a company still has on its hand at the end of a financial period. It may include products getting processed or are produced but not sold. Raw materials, work in progress, and final goods are all included on a broad level.read more from the above data.

Solution:

Step 1: Calculation

= 180000 + 90000 + 80000 = 350000

Step 2: Calculation showing the deriving value of the closing stock.

Total Value of Closing Stock = 400 * 87.5 = 35000

Thus, the total inventoriable value of ABC limited for March’19 is $ 3 50,000.

Example #2

Below is the data related to the manufacturing of pencils in XYZ Corporation :

Calculate the following:

  • Raw material consumedPrime costPrime CostPrime cost is the direct cost incurred in manufacturing a product and typically includes the direct production cost of goods, raw material and direct labour costs. It is an essential part of total manufacturing expenses. Costing and effective pricing of the goods are primarily determined on their basis.read moreInventoriable cost

Step 1: Calculation of Raw material consumed

Raw Material Consumed = 60000 + 480000 + (-50000) = 490000

Step 2: Calculation of Prime cost.

Prime Cost = 490000 + 240000 = 730000

Step 3: Calculation

= 730000 + 100000 + 12000 + (-15000) + 90000 + (-110000) = 807000

Advantages

Some of the advantages are as follows:

  • Total Cost Control – Cost controlCost ControlCost control is a tool used by an organization in regulating and controlling the functioning of a manufacturing concern by limiting the costs within a planned level. It begins with preparing a budget, evaluating the actual performance, and implementing the necessary actions required to rectify any discrepancies.read more is the key aim of all business persons. With the calculation, the business person will understand what type of costs are incurredCosts Are IncurredIncurred Cost refers to an expense that a Company needs to pay in exchange for the usage of a service, product, or asset. This might include direct, indirect, production, operating, & distribution charges incurred for business operations. read more and how to control the same.Cost Comparison – They will help identify the total cost for the given period. This will help compare the cost of the given period with another period. Cost comparison gives a push to benchmarking and cost optimization.Bidding Price for Tenders – For the businessman, bidding the tender is the principal task for bringing new business. In this task, inventoriable cost calculation plays a pivot role as this will only help determine the tender price.Operational Efficiency – It will help verify the optimum output received from the given input. Also, operational efficiency and effectiveness can be easily checked with the help of this cost.

Difference between Inventoriable Cost and Period Cost

This has been a guide to what is inventoriable cost and its definition. Here we discuss the formula to calculate inventoriable cost with examples, components, and advantages. You can learn more from the following accounting articles –

  • Direct Material CostDefinition of Direct MaterialDays Inventory OutstandingLast In First Out Accounting