Pretend I’m the CFO of a computer company like Dell. A custom-built computer has a sale price of $1,000. The cost of the computer parts is 400. The cost to assemble and sell is 350. Therefore, the profit potential is 250.
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Would it be accurate to say that COGS = 400? These are parts lying around a warehouse, we haven’t factored in the labor costs to assemble the parts yet
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assuming that COGS = 400, then NVR is 1000 - 350 = 650, right? Since NVR of 650 is greater than COGS (400), I should be using 650 as the unit value when declaring inventory value on my company’s balance sheet, right or wrong?
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On wikipedia, it states that I am allowed to use the SALE price to calculate inventory value (1000). Is this wrong, or is there some context where it’s okay?
http://en.wikipedia.org/wiki/Net_realizable_value
“Inventory can be valued at either its historical cost or its market value. Because the market value of an inventory is not always available, NRV is sometimes used as a substitute for this value.”’
EDIT: i think i figured it out; the answer depends if you’re reporting undeer GAAP vs IFRS standards?