This tool contains two sample policies that outline guidelines and accounting policies associated with an organization's inventory process.
Inventories should be stated at the lower of cost or market. The valuation method for each item of inventory will remain consistent from one accounting period to the next accounting period. Operations using a standard cost system, material, labor and overhead variances are to be capitalized at each quarter-end using a reasonable method, preferably based on inventory turns. Inventory costs are determined by using the full absorption method, which includes material, direct labor, variable and fixed indirect production costs.