Inventories week 4
Inventories are items used to produce other products in a manufacturing business setting. Inventories are also those items held by a business for resale purposes usually at a profit. Inventories in a firm include the following raw materials, work in progress and finished goods.
Raw materials
Raw materials are inventories that are used in the process of producing a particular product that a company intends to resell at a profit (Porter & Norton, 2016). Raw materials are the items that make up the components of the finished goods. Raw materials are used in determining the cost of an item by adding the purchased raw material inventories to the beginning inventory. Ending inventories are then subtracted from the difference between the beginning inventories and the purchased raw materials the results are the materials used in during the production process.
Raw materials = Beginning inventory materials purchased - Ending inventory
Work in progress
Work in progress are those in items whose production process is still underway, and the inventories are not ready to be sold in the market to various customers (Porter & Norton, 2016). It is used to determine the cost of an item by adding total manufacturing to the beginning inventory. Ending inventory is then subtracted from the difference between the two inventories, and the resulting value is the total cost of goods manufactured.
Finished goods
Finished goods are those inventories that are ready for sale in the market to various consumers. Finished goods inventory are used to calculate the cost of a product by adding the total cost of manufactured goods to the beginning inventories. Ending inventory is subtracted from the difference, and the results are the cost of goods sold.
References
Porter, G. and Norton, C. (2016). Financial Accounting: The Impact on Decision Makers.
Fort Worth, Tex.: Dryden Press.
