Valuation of Inventories in Systems with Product Recovery

Abstract

Valuation of inventories has different purposes, in particular accounting and decision making, and it is not necessary for a firm to use the same valuation method for both purposes. In fact, it is not uncommon to use accounting books as well as management books. In this chapter, we will only consider inventory values from the perspective of decision making. More specifically, we will analyze the effect of inventory valuation on inventory control decisions (and not the corresponding financial results) for systems with product recovery. Of course, inventory valuation also influences other strategic and operations management decisions concerning product recovery, as is illustrated by the following real-life example.