In This Episode
This might seem like a simple question. But depending who you ask about valuing your inventory, the next thing you know you get into a discussion about LIFO vs. FIFO and WIP vs. Finished Goods. What does all that mean?
Well, the answer might vary depending on the type of business you have. For instance, if you are a manufacturer then you are probably very familiar with the three different stages of Inventory classifications: i) Raw Material, ii) Work In Process or WIP, and iii) Finished Goods. But if you’re a retailer, distribution company, or someone working in the trades, you might just think about the inventory being whatever you bought and that’s it. But there’s more to it.
First off, you need to make a decision at what point do you expense something vs. capitalize it? Capitalizing a cost is what you do to put something on your balance sheet and it usually has a positive impact on your profitability. Next, what if you make some improvements or changes to that inventory? How do you capture those costs? What about the space it takes up in your warehouse or the cost of utilities, insurance, and non-productive employees? What if there is some shrinkage?
During today’s show we gave several different examples for how to think about your Inventory a little differently and touched on how that can impact your pricing and profitability.
People, Companies and Resources We Mentioned in the Show
Johnny Cash, One Piece at a Time (https://en.wikipedia.org/wiki/One_Piece_at_a_Time)