It is critical for a number of factors to ensure that stock is valued accurately. This will normally mean a periodic, or a perpetual inventory system. Counting inventory informs the organisation of:
- Stock valuation;
- Any variances between this and on-going system information;
- Value of inventory displaced within a certain time period(for example inventory has reduced by 5% during last 12 months);
- How many of each item has been used, sold or is unaccounted for; and
- How many of each item is currently on-hand, and therefore can keep any order fulfilment requirements to be met.
There are a few issues with valuing inventory in that, for every time period there may be a difference within purchased material prices, or in actual manufacturing or overhead allocation cost for finished goods inventory. Even actual sales price of inventory may have changed.
