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Monday, November 09, 2009

Butchering and the Inventory Impact

Hi Joe,
My question would also be, how do account for it in inventory. Right now we are sitting on 400 lbs of this usable trim product for grinding stewing or otherwise. We will generate revenue from it, but wonder do we count it at a discounted price per pound or the original price per lb. that we paid for it when it was a whole muscle item?

Thanks for the quick and informed response. Greatly appreciated!!


Imagine you have a vendor, Fabricated Beef Products, who you swap whole pieces of meat for fabricated, portion control items. You never pay this vendor any money since you swap one large item for several smaller items. If you give them $1,000 worth of whole sirloin and they return sirloin steaks and ground beef, you would treat the transaction as a wash.

Credit the inventory value of the whole piece of meat. Then debit the inventory for the steaks and trim meat. If you decide to treat the trim as free, the steaks would carry the full cost of the whole piece of meat. On the other hand, if you place a value on the trim, discount the value of the whole piece by the trim credit and then value the steaks based on the net.

The key issue here is the value of the steaks. You probably would not spend the labor cost butchering the whole sirloin simply to achieve many pounds of ground beef. If you have a true value in your operation for the trim meat (I use revenue generating menu items for my test.), go ahead use a full credit based on comparable market prices for ground beef.

The total of the steaks and trim for a specific production batch would be exactly equal to the value of the whole sirloin used in the batch. In a nutshell, your steak cost goes higher as the credit for trim goes lower.

It seems you meet the criteria for valuing the trim based on the market cost of ground beef. Your inventory value of the steaks and trim should reflect the cost of the whole sirloin used to produce these items.

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