The world is said to be a global market meaning that the existence of the world revolves around market factors. These are demand and supply which are key to the continuity of business entities. Creating an inventory is on the other hand vital for proper business stability and can be useful in showing the value or the net worth of a business at a given time. The idea of creating a list price for inventory helps in compiling the total value of stock or goods that are to be sold together with all the assets and finished goods that are available in a business.
Making a list price intended for use in reference to goods for sale is an act that cuts down the process of sales and gives defined prices that helps one in budgeting and book keeping. This process follows a definite path from the start to the endpoint where one comes up with the finished product referred to as a list price. Since an inventory revolve around some specific areas like the category of goods for resale, raw materials, work in progress and the ultimate finished goods, there is need to start by creating a price list for each of the undermentioned.
List price is determined when the net purchases are added to the inventory at the beginning of the trading period and the sum amount reduced by the value of the cost of sales, otherwise called cost of goods sold and what is left as the total shows the value of inventory at the end of the trading period. Setting a price for the value of goods at this stage to form a list price involves opening an account for each category of inventory in this case say for raw materials. Opening an account for valuation of raw materials and the components that are intended transformation into finished product.
Work in progress that includes the raw materials that have already been fed into the manufacturing chain and are awaiting transformation into finished products. They are valued at the same way a finished product will be valued because these are the building blocks for finished commodities. Without them there is no trade at the end of the day.
Finished goods constitute an important component for a list price in an inventory since already finished goods that are in the warehouse waiting sale needs to be branded with an appropriate pricing. This is where interest is centered because of the identity of a business being likened to what is sells to its customers. This is what links a business entity to the outside as a commodity.
Price setting depends on the prevailing market condition and the forces of demand and supply then the list price terminated at the end of valuation of goods that were once sold then returned for some reason then since they are still saleable, are sold to a willing customer. Determining of price for this is dependent on the market condition which is subject to change.
Making a good list price for inventory helps in taking care of uncertainty issue commonly known as fear of the unknown and also good for economies of scale.
Sources and Citations
The information was obtained from different search engine like the professional inventory management, Wikipedia, personal knowledge and investopedia.