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How to value inventory

Accounting

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How to value inventory. I wanted to provide an example of how we do this at my workplace. We have our payments made for the raw materials which get coded to raw materials inventory. We then start work on the items and there is labor and overhead added based upon the stage that it is in. It eventually is finished and becomes finished goods. So how do we come up with these costs?

We take our inventory at the end of each quarter and we know what is raw material and this is recorded on our balance sheet as inventory at its purchase price.

We might have some WIP and/or finished goods. We have stages such as the following for the iron process:

Shafted

Shafted and gripped

Loft and Lie

Finished Club

For this example, a shafted club has the cost of the head and shaft as well as some labor and some overhead. A finished club would be worth more since it has more labor and overhead. We take our overhead costs at the end of each year and divide it by the number of clubs produced to get our new overhead rate. Each product is separate (irons, metal woods, putters etc.) so this is easy to do.

Please let me know if you agree or disagree