An Analysis of Current Theory and Practice Regarding the Elements of Cost Included in Inventory by Manufacturers.

Abstract The article presents an analysis of current theory and practice regarding elements of cost included in inventory by manufactures. One of the traditional ideas in accounting is that inventory cost for manufacturing concerns should include manufacturing costs, but exclude non-manufacturing costs. Since inventory valuation has a direct effect on the income reported for an accounting period and since many groups are interested in the income of corporations engaged in manufacturing operations, it seems desirable that there be some uniformity of practice, at least within each industry, as to the particular cost elements, which become product costs and those which are treated as costs chargeable to the period. In the approach to the subject two major hypotheses were set up to be tested: whether traditional theory provides a sound and workable guide as to which items are includible in inventory of manufacturers and whether practice of companies complies with this traditional theory, and if not, the extent of variation and reasons for the practices found. Profit determination, including inventory valuation, was accepted as the function of cost accounting to be given primary emphasis in this study.