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Analysis of Inventory

Difficulty: Advanced

Inventory Accounting Policy

Inventoried costs on commercial aircraft programs and long-term contracts include direct engineering, production and tooling and other non-recurring costs, and applicable overhead, which includes fringe benefits, production related indirect and plant management salaries and plant services, not in excess of estimated net realizable value. To the extent a material amount of such costs are related to an abnormal event or are fixed costs not appropriately attributable to Boeing's programs or contracts, they are expensed in the current period rather than inventoried. Inventoried costs include amounts relating to programs and contracts with long-term production cycles, a portion of which is not expected to be realized within one year. Included in inventory for federal government contracts is an allocation of allowable costs related to manufacturing process reengineering.

Commercial aircraft programs inventory includes deferred production costs and supplier advances. Deferred production costs represent actual costs incurred for production of early units that exceed the estimated average cost of all units in the program accounting quantity. Higher production costs are experienced at the beginning of a new or derivative airplane program. Units produced early in a program require substantially more effort (labor and other resources) than units produced later in a program because of volume efficiencies and the effects of learning. Boeing expects that these deferred costs will be fully recovered when all units included in the accounting quantity are delivered as the expected unit cost for later deliveries is below the estimated average cost of all units in the program. Supplier advances represent payments for parts Boeing has contracted to receive from suppliers in the future. As parts are received, supplier advances are amortized to work in process.

The determination of net realizable value of long-term contract costs is based upon quarterly reviews that estimate costs to be incurred to complete all contract requirements. When actual contract costs and the estimate to complete exceed total estimated contract revenues, a loss provision is recorded. The determination of net realizable value of commercial aircraft program costs is based upon quarterly program reviews that estimate revenue and cost to be incurred to complete the program accounting quantity. When estimated costs to complete exceed estimated program revenues to go, a program loss provision is recorded in the current period for the estimated loss on all undelivered units in the accounting quantity.

Used aircraft purchased by the Commercial Airplanes segment and general stock materials are stated at cost not in excess of net realizable value. Spare parts inventory is stated at lower of average unit cost or net realizable value. Boeing reviews the commercial spare parts and general stock materials quarterly to identify impaired inventory, including excess or obsolete inventory, based on historical sales trends, expected production usage, and the size and age of the aircraft fleet using the part. Impaired inventories are charged to Cost of products in the period the impairment occurs.

Included in inventory for commercial aircraft programs are amounts paid or credited in cash, or other consideration to certain airline customers, that are referred to as early issue sales consideration. Early issue sales consideration is recognized as a reduction to revenue when the delivery of the aircraft under contract occurs. If an airline customer does not perform and take delivery of the contracted aircraft, Boeing believes that Boeing would have the ability to recover amounts paid. However, to the extent early issue sales consideration exceeds advances and is not considered to be otherwise recoverable, it would be written off in the current period.

Boeing nets advances and progress billings on long-term contracts against inventory in the Consolidated Statements of Financial Position. Advances and progress billings in excess of related inventory are reported in Advances and billings in excess of related costs.

Source: 10-K (filing date: 2018-02-12).

Inventory Disclosure

Boeing Co., Statement of Financial Position, Inventory

USD $ in millions

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Long-term contracts in progress 13,889  12,801  13,858  13,381  12,608 
Commercial aircraft programs 52,861  52,048  55,230  55,220  48,065 
Commercial spare parts, used aircraft, general stock materials and other 5,688  5,446  6,673  7,421  7,793 
Inventory before advances and progress billings 72,438  70,295  75,761  76,022  68,466 
Less: Advances and progress billings (28,094) (27,096) (28,504) (29,266) (25,554)
Inventories 44,344  43,199  47,257  46,756  42,912 

Based on: 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-12), 10-K (filing date: 2014-02-14).

Item Description The company
Long-term contracts in progress Carrying amount as of the balance sheet date of inventories associated with long-term contracts or programs. Boeing Co.'s long-term contracts in progress declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Inventories Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer). Boeing Co.'s inventories declined from 2015 to 2016 but then slightly increased from 2016 to 2017.