Accounting (AS)·Cost structures · NSSCAS 5.1.1
Materials, labour & valuing inventory (cost vs NRV)
Narrated lesson · press play
This lesson opens the cost and management accounting half of your course — the accounting that helps managers inside the business make decisions. Inside a Windhoek furniture workshop you will learn to split materials and labour into direct and indirect costs, value closing inventory at the lower of cost and net realisable value (NRV), and meet the FIFO and AVCO methods. Paper 2 loves this: a define-NRV question, a lower-of-cost-or-NRV table, and an advantages question on FIFO or AVCO appear again and again.
What you'll learn in this lesson
By the end you should be able to (NSSCAS Accounting (AS) 5.1.1):
- explain direct and indirect materials
- explain direct and indirect labour
- define and apply the principle of valuing inventory at the lower of cost or net realisable value (NRV)
- explain the first in first out (FIFO) and average cost (AVCO) methods of inventory valuation
- explain advantages and disadvantages of FIFO and AVCO
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