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In textbook, There is a statement ” WIP should be valued at material cost only , So no value is added to profit unless sale is made ”
How exactly reported profit increase if WIP is increased ?
Is it higher inventory reduces COGS, But how exactly Higher inventory Reduces cost of sales ? If thats the case.
Ohh ,Is it the fact that If Inventory is valued at Total production cost then the( In Short term ) fixed costs like labour and Other overheads will be less for actual goods sold.
Basically, The fixed costs in short term are attributed to The WIP inventories and Ultimately reducing the Overall Cost for COGS.
So less COGS More Reported Profit In traditional costing
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