Hubbell Policies

CYCLE COUNT RESERVES POLICY

English

Owner : Vice President, Controller

Last Review: 2015.01.26

FIN – 18

Department: Finance

POLICY

All inventory held at locations which are cycle count certified must maintain a cycle count inventory reserve in accordance with the procedure below.

SCOPE

This policy applies to all Hubbell business units with cycle count certified inventory.

PURPOSE

The purpose of this policy is to ensure that reserves are established to appropriately reflect the estimated differences identified during the cycle counting process throughout the year.

PROCEDURE

This procedure applies to inventory that is currently covered by a certified cycle count process. Refer to the Procedure for Cycle Counting and Perpetual Inventory Accuracy for information about how inventory becomes cycle count certified.

For inventory that is cycle count certified, a cycle count inventory reserve should be established and maintained to provide for potential errors in the perpetual inventory records.

The cycle count inventory reserve will be estimated based on the rate of annual cycle count adjustments to the ending inventory balance of the prior year, by ABC code. For example, cycle count inventory reserves in 2014 are based on the rate of cycle count adjustments for the full year in 2013 to the ending 2013 inventory balance. For “A - classified” inventory the rate in the example below is 1.23%. If the annual cycle count adjustments for a particular inventory code are positive (i.e., an increase to inventory), then the rate used for that particular inventory code should be zero and no cycle count inventory reserve should be held for that ABC code. Refer to the Procedure for Cycle Counting and Perpetual Inventory Accuracy for a description of ABC codes. The cycle count inventory reserve will be adjusted on a quarterly basis, in the second month of each quarter, by applying the rate to the inventory balance as of the beginning of the quarter. For example, the second quarter end reserve will be calculated and adjusted in the general ledger in the May close by applying the rate to the inventory balance as of the end of the first quarter. Each inventory classification is also adjusted by a factor that corresponds to the frequency of cycle counts. The factor for A, B, C, and D inventory is shown in the example below (based on cycle count methodology of A’s counted four times a year, B’s three times, C’s twice, and D’s once, take one fourth of the A’s, one third of the B’s, half of C’s and all of D’s).

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