How do you verify if actual inventory is within the allowed variance?

The method of verifying if actual inventory is within the allowed variance involves comparing actual costs with theoretical costs. This approach allows for a detailed analysis of what the inventory should theoretically cost versus what it actually costs based on the physical inventory count and purchase records. By using this comparison, discrepancies can be identified and assessed, helping to understand any variances, whether they stem from waste, theft, errors in receiving, or pricing inaccuracies.

This process is essential for maintaining accurate inventory records, which can have significant implications for financial reporting, budgeting, and decision-making within the business. By establishing a clear baseline of theoretical costs based on standard pricing and expected inventory levels, one can effectively monitor and manage inventory performance.