Hi, As per Schweser: “Inventory is reported at the lower of COSt or net realizable value. Net realizable value is the selling price of the inventory less the estimated cost of completion and disposal costs. For a manufacturer, inventory Cost includes direct materials, direct labor, and overhead. Inventory cost excludes the following: Abnormal amounts of wasted materials, labor, and overhead. • Storage costs beyond the production process. • Administrative overhead. • Disposal (selling) costs.” As can be seen above, the first assumption is NRV=SP-inventory costs(cost of completion,disposal costs). Then Schweser says that disposal costs are to be excluded from inventory costs. Am I missing something in the definition? Btw, the CFA module says NRV=SP-cost of materials-cost of conversion-cost of bringing to condition and location. Cheers, Nash
" As can be seen above, the first assumption is NRV=SP-inventory costs(cost of completion,disposal costs)." No, I think they mean NRV = SP - disposal/completion costs. Inventory cost is the cost to make and maintain inventory (essentially cost of goods sold) excluding those 3 points.
Thanx a ton Isura… Cheers, Nash