Types of Inventory
An inventory item can be grouped into one of the f0110Mfng categories:
I. Raw materials include new inventory iterns purchased fronm suppliers; it is the
material a firm purchases to transform into finished products for sale. As long
as the firm has an inventory of raw materials, delays in ordering and delivery
from suppliers do not affect the production process.
2. Work-in-process refers to inventory items that are at various stages of the
production process. If a firm has work-in-process at every stage of the production process, then it not have to completely shut down production if a
problem arises at one of the earlier stages.
3. Finished goods inventory represents products that are ready for sale. Firms
carry finished goods to ensure that orders can be filled when they are received.
If there are no finished goods, the firm has to wait for the completion of the
production process before inventory can be sold; thus, demand might not be
satisfied when it arrives. a customer arrives and there is no inventory to
satisfy that demand, a stockout exists, and the firm might lose the demand to
competitors, perhaps permanently.