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Sample Business Case

This document discusses inventory valuation and summarizes different scenarios involving raw material issuance, production, and variances. It provides three key points: 1. Inventory valuation tracks raw materials as an asset and work in process as an expense. Variances are gains or losses that impact assets and expenses. 2. If production is below requirements due to shrinkage, it results in a loss as assets decrease and expenses increase. If above requirements due to elongation, it results in a gain as assets increase and expenses decrease. 3. Variances can be tracked in a material variance account and later released to cost of goods sold to ultimately impact profits.

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73 views4 pages

Sample Business Case

This document discusses inventory valuation and summarizes different scenarios involving raw material issuance, production, and variances. It provides three key points: 1. Inventory valuation tracks raw materials as an asset and work in process as an expense. Variances are gains or losses that impact assets and expenses. 2. If production is below requirements due to shrinkage, it results in a loss as assets decrease and expenses increase. If above requirements due to elongation, it results in a gain as assets increase and expenses decrease. 3. Variances can be tracked in a material variance account and later released to cost of goods sold to ultimately impact profits.

Uploaded by

imranyfgm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Inventory Valuation This is Asset Balance Account

Account Nature
OSP WIP This is Expense P&L Account
Sample Business Case R.M Issue Shrinkage
SPO Mtrs 1000 1150
OSP Charge 58
Parameters Raw Material Rate 200 15%
Shirkange 30
Finish Rate 288

OSP Issuance Dr Cr
OSP-WIP 230000
Inv Valuation-RM 230000 Inventory
Valuation (Asset)
and OSP WIP
Service PO Charge SPO GRN Dr Cr (Expense)
OSP-WIP 58000
Accural 58000

Mtrs OSP Production Received


1000 Inv Valuation-FG 288000
No Profit No Loss
OSP-WIP 288000
If Production Marked Below The Requirement
900 Inv Valuation-FG 259200 Loss (Wastage)
OSP-WIP 259200 28800
If Production Marked Above The Requirement
1100 Inv Valuation-FG 316800 Gain (Elongation)
OSP-WIP 316800 -28800

If Shrinkage Occurrence
Wastage/Elongation Dr Cr
Loss if asset decreases
and expenses increases Inv Valuation-FG 28800
OSP-WIP 28800

If Elongation Occurrence
Wastage/Elongation Dr Cr
Gain if asset increases
and expenses Inv Valuation-FG -28800
decreases OSP-WIP -28800

Finally, All Finish Goods variances hits COGS account to increases or decreases P&L
Note # 1
As business scenario, the variances can be park into material variance account to be
hold and then released at the period closing activity for final impact
Note # 2

With Material Variance Account


If Shrinkage Occurrence
Wastage/Elongation Dr Cr
Loss if asset decreases
and expenses increases Inv Valuation-FG 28800
OSP-Material Variance 28800

If Elongation Occurrence
Wastage/Elongation Dr Cr
Gain if asset increases
and expenses Inv Valuation-FG 28800
decreases OSP-Material Variance 28800
Expense Variance Charge
If Shrinkage Occurrence
Wastage/Elongation Dr Cr
Loss if asset decreases
and expenses increases OSP-Material Variance 28800
OSP-WIP 28800

If Elongation Occurrence
Wastage/Elongation Dr Cr
Gain if asset increases
and expenses OSP-Material Variance 28800
decreases OSP-WIP 28800
Case # 1 (+/-)VARIANCE IMPACT COMPARITIVE
Issue Received
1000 1000
Issuance OSP WIP 230000
15 Prod Charges OSP WIP 58000

REVENUE
Product Received OSP WIP -288000

COGS
Variance 0
Case # 2
Issue Received
1000 900
Issuance OSP WIP 230000
Prod Charges OSP WIP 58000
Product Received OSP WIP -259200
Variance 28800
Case # 3
288,000
Issue Received
1000 1100
316,800
Issuance OSP WIP 230000
28,800 400,000
Prod Charges OSP WIP 58000
(28,800)
Product Received OSP WIP -316800 259,200
Variance -28800
PACT COMPARITIVE
P&L

83,200 21%

140,800 35%

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