School of Business and Economics

Department of Accounting and Finance

ACT 201
Assignment 2

Submitted To:
Samina Rahman
Faculty

School of Business
Department of Accounting and Finance

Submitted By:

Name: Maisha Bhuiyan

ID: 2031446630
Table of Contents
Executive summary:...........................................................................................................3
The Business I am dealing with is the electronics manufacturing Business..........................4
Selling Process of such Business...................................................................................................4
Benefits of the Process:................................................................................................................4
The inventory cost flow methods.......................................................................................4
Inventory Valuing systems...........................................................................................................4
Financial implications of using these methods....................................................................5
Inventory turnover.............................................................................................................6
Inventory turnover.......................................................................................................................6
Assets depreciation............................................................................................................6
Conclusion:........................................................................................................................7
Executive summary:
In an electronics company, we need to know how our inventory is gathered and how it should
be distributed to the selling department for accounting purposes.  This allows the firm to see
potential future difficulties, predict approaching trends, and boost efficiency. The following
writing will shed light on how different inventory cost flow methods like the Specific cost
method, Specific cost methods, then the Weight average cost method, FIFO as in First in First
Out method, and lastly LIFO Last in First Out method.
Also, there will be a discussion on inventory turnover for an electronics company that will
help predict how a company should decide and how many products the company should
produce or source in a given period.
This report also discussed how a company, the electronics company, should manage their
assets. How much PQR should depreciate to create a balance between cost and income.
The Business I am dealing with is the electronics manufacturing
Business.
Selling Process of such Business: Our Business sells electronic products to clients at a
reasonable price. We need to know how our inventory is collected and how it should be
delivered to the selling department for accounting purposes. Aside from that, economic
difficulties influence customer purchasing power, therefore influencing electronic companies
and profit margins. As a result, excellent statistical techniques are required to evaluate the
industry's previous success and anticipate prospects.
This enables the company to make sales, operational, financial, and supply chain analytics,
making it simple to detect future trouble spots, upcoming forecast trends, and
improved results. Implementing the approach improves teamwork at all levels of
management, including the executive level.

Benefits of the Process:

• Improved customer satisfaction
• Reduced inventory
• Shorter lead time for delivery
• Minimized depreciation
• Consistency in production rates leading to higher output
• Minimize premium transportation expenses

The inventory cost flow methods.

First of all, we must understand that even if the purchase price and inventory expenses are
fixed, calculating the inventory ending value is simple; nevertheless, our company must make
some assumptions based on the technique it employs.

Inventory Valuing systems

For determining the value of our ending inventory and the cost of goods sold, we can use one
of four methods.

1. Specific cost method

2. Weighted average cost method
3. FIFO (First in First Out) method
4. LIFO (Last in First out method).
Financial implications of using these methods.
Let's discuss these methods and the financial implications of using these methods.

1. The specific cost method enables users to determine the expenses associated with
an item. This approach is straightforward to implement. This is typically used when a
company sells fully finished items such as an automobile, a car, or a motorcycle.
The firm can be assured of the date of purchase, the price of each unit, and the final
inventory with this technique.
2. The customer can use the weighted average cost technique to apply a periodical
method of value as well as try and apply the very same cost to all the units in the
inventory.
The weighted average cost per unit is calculated as follows: cost of goods available
for selling/number of units available for sale.
And the ending inventory value is equal to the weighted average cost per unit
multiplied by the number of units in stock.
3. Using the First in First Out method, the seller may infer that the first purchased
units would be the first to sell out and that the inventory value will always equal the
last purchased units. It makes no difference whether the company uses perpetual or
periodic inventory under this method.
The financial impact of this approach is that it raises ending inventory value while
lowering the cost of goods sold, resulting in a rise in net income.
As a result, if taxable income is higher, this technique is ineffective. This technique is
not acceptable if the firm wants to decrease its tax burden.

4. The Last in First Out method allows the company to presume that the most
recently purchased units are the first to be sold. There will be multiple ways for
different inventory methods under this method. As a result, if the cost of products sold
fluctuates, so does net income.

This approach has an adverse impact since it shows a lower ending inventory value
and a higher cost of goods sold, which results in reduced net income.

As a result, most businesses prefer to adopt the LIFO technique whenever possible.
Inventory turnover
Inventory turnover is a financial indicator of how many times a company's inventory has
been sold and replaced over a given period. Thus, the days needed for the inventory on
hand may be estimated using the inventory turnover formula to multiply the number of
days in the period. Follow these steps to keep track of your inventory levels:
 Organize inventory data.
 Spend less money on inventory.
 Keep transactions secure.
 Track sales processes.
 Track orders.
 Track deliveries.
 Generate work orders and bills of materials.
The ideal inventory turnover rate is between 2 and 4. Low inventory turnover might
indicate a sales staff that is underperforming or a drop in the appeal of your items. In most
situations (but not always), the higher your inventory turnover rate, the better your company
goals are accomplished.

There are two ways in this approach. The first is to divide the company's total sales by the
average inventory balance. The cost of the goods sold by the PQR firm is split in the second
method by its average inventory. Meaning When a PQR company sells high-priced goods, a
low inventory turnover ratio is suitable. In contrast, when the PQR company sells low-priced
goods, a high inventory turnover ratio is ideal.

Asset's depreciation
Let's figure out how much our PQR electronics Ltd assets have depreciated.

Assume our PQR company has a $5,00,000 value cost of equipment at the start of our
Business on January 1, 2021, and that the company employs a 10% annual depreciation rate.
On a strategy line basis, the company's ending balance of machinery cost on December 31,
2021, will be (5,00,000- 50,000= 4,50,000$).

Depreciation costs of $50,000 for the year will be recorded as expenses in the company's
profit and loss account.
Reference:

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https://www.investopedia.com/terms/i/inventoryturnover.asp

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Franklin, M., Graybeal, P., & Cooper, D. (2018, July 24). Calculate the cost of goods sold

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Trawick, K. H., CPA. (2021, May 06). How to Calculate days in inventory. Retrieved August

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