Inventory Policy

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Top Inventory Guidelines and Procedures

This Inventory Policy outlines guidelines and accounting policies to ensure that inventory is properly controlled and valued and that losses or shortages are prevented.

Under this policy, inventory costs are determined by using the full absorption method, which includes material, direct labor, variable and fixed indirect production (overhead) costs. Standard costs are updated as prescribed by the market and reviewed annually for reasonableness. The purchase price is different from the standard cost, and the actual costs are recorded in a variance account, which is utilized to determine appropriate standard costs.

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