How do I calculate the value of my inventory

[Chiarastone]

Hi

I have just come across this forum, I've had a search and can't see the answer to my question so I hope it's ok to post this.
My business is less than a year old and I find a lot of the business jargon quite confusing. Basically I am starting to go through my accounts, not just for my year end but also with the hopes of gaining investment.

When calculating the value of my inventory should it be the value of the item (I manufacture my product within the UK then sell it at a retail price, I also wholesale to other retailers) or should it be the cost that the consumer pays for the item. Bearing in mind the difference between the retail price and the wholesale price.
I'm confused, any advice would be greatly appreciated.
Thanks
Chiara

 

[faradaykeynes]

Stock is valued at lower of cost or net realisable value, method can be fifo

 

[Chiarastone]

Stock is valued at lower of cost or net realisable value, method can be fifo

So in simple terms either the price I am paying to manufacture the product or the price I would charge to wholesale. Would that be the net realisable value?
I googled FIFO but I still don't really understand that method...

 

[Scalloway]

The cost of the product is the parts plus labour. Using the wholesale price is not acceptable to HMRC.

FIFO means that when you come to cost your stock at the year end you assume that the items hald in stock are the most recently purchased and use that purchase price.

 

[Billmccallum]

Most manufacturing businesses would have two different methods of valuation:

Materials - Raw materials you have bought in to make your products, valued at price when purchased.

Stock in hand - items you have made from raw materials - as scalloway say's, priced at cost plus labour.

The cost of labour can be calculated by averging the time taken to produce, for example - 2500 items produced in the year / worked 20 hours a week producing items.

20 hours x 50 weeks = 1000 hours 2500/1000 = £2.50 each

 

[Chiarastone]

Thank you, those responses are very helpful. So essentially the answer to my initial question is that it is worked out on the price I am paying not the consumer.
I hadn't even considered the labour costs so I will factor that in.
I hold both components and completed items so can I include both of these in my calculations?

 

[faradaykeynes]

here are few example http://www.accounting-basics-for-students.com/fifo-method.html

http://www.osbornebooksshop.co.uk/files/a2_sample_chapter_inventory_valuation.pdf

How to Calculate Manufacturing Overhead


http://www.brighthub.com/office/finance/articles/103340.aspx

That should keep you busy for weekend

 

[Chiarastone]

Thank you , I will have a read through those links, thanks very much for your help