Inventory Costing.

Inventory
Definitions of Inventory (As Assets):

Inventories are assets that meet the following

requirements:
 a) Held* for sale in the normal course of
operations
 b) In production process with a view to that
sale
 c) In the form of materials or supplies to be
consumed in the production process or
in the provision of services

*Held: Mantenidos
Definitions of Inventory (As Assets):

Inventory is the term for the goods

available for sale and raw materials
used to produce goods available for
sale. Inventory represents one of the
most important assets of a business
because the turnover of inventory
represents one of the primary
sources of revenue generation and
subsequent earnings for the
company's shareholders.
Definitions of Inventory (As Assets):

Inventory is the array of finished

goods or goods used in
production held by a company.
Inventory is classified as a current
asset on a company's balance
sheet, and it serves as a buffer
between manufacturing and order
fulfilment. When an inventory item
is sold, its carrying cost transfers to
the cost of goods sold (COGS)
category on the income statement.
Raw Materials Inventory
 These are the materials or goods purchased
by the manufacturer. The manufacturing
process is applied to the raw material to
produce desired finished goods. For example:
Flour is used to produce bread.
 Finished goods for someone can be raw
material for someone else For example, the
aluminium ingot can be used as raw material
by utensils manufacturer to create spoons,
forks, knifes…
 The business importance of raw material as
an inventory is mainly to protect any
interruption in production planning. Other
reasons can be availing price discount on
bulk purchases, guard against market
shortage situation, etc.
Work in Progress Inventory
 These are the partly processed raw materials lying on the production floor. They
may or may not be saleable. These are also called semi-finished goods.
 It is unavoidable inventory which will be created in almost any manufacturing business.
 This level of this inventory should be kept as low as possible. Since a lot of money
is blocked over here which otherwise can be used to achieve better returns.
 Speeding up the manufacturing process, proper production planning, customer and
supplier system integration etc can diminish the levels of work in progress. Lean
management considers it as waste.