Question

Explain the value of understanding why inventory balances, inventory turnover, cost of goods sold, operating margin, and working capital are important metrics for Cost Accounting for Boeing Manufacturing Corporation. In separate paragraphs just few sentences for each definitions

Thank you

Answer 1

Inventory balances, inventory turnover, COGS, operating margin and working capital are important in cost accounting because it depicts the production and maintain profit for the organization. Value of understanding why these are important:

Inventory balances : Inventory is a current asset on your company's balance sheet and a major part of ongoing business operations. Having an accurate valuation of inventory is important because the reported amount of inventory will affect 1) the cost of goods sold, gross profit, and net income on the income statement, and 2) the amount of current assets, working capital, total assets, and stockholders' or owner's equity reported on the balance sheet.

Inventory turnover: Inventory turnover ratio indicates the number of times inventory is replaced during the year. It is an important metric because it measures a company’s ability to turn inventory, a non-cash asset into cash.

Cost of Goods Sold : Cost of goods sold measures the costs associated with purchasing or manufacturing materials that a company uses for sales. It is important matric because it is subtracted from a company’s revenues to determine its gross profit.

Operating margin : The operating margin measures how much profit a company makes on sales, after paying for variable costs of production, such as wages and raw materials. It is important because it determines the operational efficiency of the management and an effective measure to judge profitability of the business.

Working Capital : Working capital is money available to a company for day-to-day operations. It includes cash, inventory, accounts receivable, accounts payable etc. It is important because it is a measure of a company's ability to pay off short-term expenses or debts.