Inventory Valuation
Definition
The method and dollar value you assign to the inventory you have on hand, which flows directly into COGS and profit.
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Formula
Ending Inventory Value = Units on Hand × Unit Cost (under FIFO, weighted average or standard cost)Valuation decides how much of your spending sits on the balance sheet and how much becomes COGS. Small errors in unit cost multiply across thousands of units.
Unit costs should include full landed cost. Watch for: inventory valued at supplier price only, which understates assets and makes gross margins look better than reality.
Example
8,000 units on hand at a weighted average cost of $11.40 gives an inventory value of $91,200.