Inventory management

What is inventory management?

Inventory management seeks coordination and efficiency in the administration of the materials necessary for the activity.

Before defining inventory management, let's define cost accounting, which is a branch of accounting that is dedicated to analyzing, determining, and controlling the costs that an organization incurs.

Inventory management definition

Inventory management is included within the cost accounting branch and is defined as the proper administration of the registration, purchase, and exit of inventory within the company.

A company usually maintains a minimum number of stock to cope with increases in demand, in the same way, that it also has to have the necessary material to continue production and that there is no pause in the activity.

Types of inventories

There may be different types of inventories such as raw materials, finished products, etc.

Two methods are usually used for inventory management:

ABC system
Economical order quantity
Valuation of the exit of stocks

There are several methods to find out the final cost of the exit of the stocks that were in the inventory.

FIFO: First in First out. The first existence to enter, the first to exit. It means that the inventories are valued at their exit, at the cost price of the first existence in the warehouse, that is, the inventories will be valued at the oldest cost price
LIFO: Last in First out. The last existence to enter, the first to exit. Stocks will be valued at the most current cost price, at the last stock entered into inventory
PMP: Weighted average price. Cost price is the weighted average of the different entry prices(fba prep center)