Inventory Cost Flow Methods

Inventory Cost Flow Methods

Bus 311: Accounting for Managers

Inventory Cost Flow Methods

How has the use of technology influenced businesses to better manage their inventory? The topic I chose is Inventory cost flow methods. I am choosing this because I work in management for a 3 million dollar retail business and I would like to better understand how and why the different methods are used to control physical inventory. I will look into previous methods of inventory control and then focus on the 4 types listed in the textbook. I will also explain why different types of inventory controls would work better for different size businesses.

This topic flows well into technology uses in business which is my overall umbrella topic for the accelerated business courses. This topic will improve my overall IPP with the introduction accounting practices and technology.

Inventory methods discussed within this topic will include specific identification, first-in, first-out (FIFO), last-in, first-out (LIFO) and weighted average. The limitations of this research would be lack of knowledge about last-in, first-out, weighted average and physical flow. First-in, first-out is the preferred method used at my place of employment.

In the early days of inventory management businesses would write down sales in real time and then do their best to forecast what the needs of the business would be in the future. This method was difficult and not exact as it did not allow for trends or accurate means of tracking goods as they left. Real time tracking changed this by allowing items to automatically be reordered once it was sold. Inventory management has been around as long as writing in most cases. Dr. Gunter Dreyer of the German Institute of Archaeology stated "The urge to make the flow of goods and services more efficient is perhaps identical with the urge of civilization itself. The world's earliest known writing (-5300 years) described inventory owners, amounts, and suppliers" (ZakiZagena, 2009).

After the industrial revolution businesses needed a better way to streamline their inventory control methods because the process of mass production was sweeping the nation and the number of products that were being produced was on the rise. In the 1930's a team of Harvard students introduced the first checkout system. This system used a variety of punch cards that correlated to different products in the store. As the punch cards were fed into the system it allowed workers in the storeroom to pick products and have them delivered to the front of store.

One advantage to this type of new system was that it allowed businesses the opportunity to generate billing