1 What is the definition of inventory management 2 Why is th

1. What is the definition of inventory management?

2. Why is the proper inventory management important?

3. Explain the different methods used to value inventory.  

( Subject: Healthcare Financing)                                                                                                                  

Solution

Inventory management is the proper utilization of inventory, which includes raw materials, work-in-progress goods and finished goods, by ordering in an efficient manner.

Proper management of inventory is important because inventory is one of the most important current assets. It is the core part of any business. If less inventory is available than required then a business loses the opportunity to earn profits, while if more inventory is available than required then a business faces the risk of spoilage and high storage costs. Hence, it should be managed efficiently and if possible insured.

Different methods used to value inventory are:

1) Specific Identification - an individual unit of inventory is valued in this method

2) LIFO - Last In First Out - In this method, the last purchased unit of inventory is used to calculate the cost of goods sold and the remaining units forms the inventory.

3) FIFO - First In First Out - In this method, the first purchased unit of inventory is used to calculate the cost of goods sold and the remaining units forms the inventory.

4) Weighted average cost - In this method, the weighted average cost of inventory is used to calculate the cost of goods sold and the remaining units forms the inventory.