Inventory Valuation - What is correct?

[Alfaz]

As a young inexperienced accountant, I am a bit confused as to whether our inventory is being valued correctly and don't want to challenge my manager until I know I am talking sense!

Our inventory is valued at the latest cost price: so where we have 50 of an item in stock that cost £50 and we buy another 50 but this time for £100, our valuation of that total 100 items becomes £200 rather than the actual cost of £150. We stock a lot of raw steel and due to the instability of steel prices recently, this valuation method seems to be causing huge variations in our stock value.

This seems to be against everything I have learnt about FIFO, LIFO and weighted average cost methods, so please could someone confirm whether this is wrong or not!

 

[pentel]

Replacement cost which is what is currently being used is a valid method but does book profits now and is in my opinion is potentially dangerous. What happens if the next 50 only cost £10? using this method you now have 150 items with a total value of £30.

What happens to the valuation of the stock that has been bought specifically for a customer that no longer exists and you can only sell at scrap value?

The key phrase here is "lower of cost or net realisable"

 

[MyAccountantOnline]

As a young inexperienced accountant, I am a bit confused as to whether our inventory is being valued correctly and don't want to challenge my manager until I know I am talking sense!

Our inventory is valued at the latest cost price: so where we have 50 of an item in stock that cost £50 and we buy another 50 but this time for £100, our valuation of that total 100 items becomes £200 rather than the actual cost of £150. We stock a lot of raw steel and due to the instability of steel prices recently, this valuation method seems to be causing huge variations in our stock value.

This seems to be against everything I have learnt about FIFO, LIFO and weighted average cost methods, so please could someone confirm whether this is wrong or not!

Why not ask your manager to explain why the company values stock in this way. You can have a conversation about it without challenging your manager. You can explain that you have learnt about FIFO, LIFO etc