What are inventory and those types, Raw Material ,Work In Progress ,Finished Goods ,scrap value
What are inventory?
An inventory is a commodity that is used for the production and sale of the business
Inventory types and explanation?
raw material , work in progress , finished goods , wastages , damaged , scrap value , opening stock , closing stock,
For example the inventory of a wooden chair manufacturing company
raw material
What is raw material ? ( Direct materials)
commerce : Raw material are those directly related to the company's production, as the company increases its production, the consumption of these materials increases.
Generally : Raw material is an item that consumers can easily identify from a company's product, which they can detect by sight or touch. Or the company itself gives its details on the back of the product.
Now we can take a wooden chair manufacturing company as an example
As we all know the most important thing needed to produce a wooden chair is wood pieces, Similarly for each type of product certain materials are the most importantly needed Such goods we call raw materials
...
work in progress
What is work in progress ?:
The WIP refers to the period between the beginning and the end, At this stage the products are being manufactured but not fully manufactured. Calculating the cost of goods at each stage is the most important part of cost calculation.
See this Cost calculation methods page for more information on cost calculation at each stage ( Raw, WIP, Fnished)
...
finished goods
What is finished goods? :
After the production work is completed and the quality & package of the goods is confirmed, the products ready for sale are called finished goods.
.
...
wastage
What is a Waste ?:
Waste materials during company production and Products that the company cannot use, Sold or destroyed depending on the type of waste product.
If there is a profit from the sale of waste products it should be recorded in the account
Sawdust $50
broken wood pieces $80
damage
What is a damage ?:
Customers always expect good quality products
So the quality of the product is tested after production and if there is any defect in it, it is fixed. If it cannot be fixed then it is added to the Scrap material. it is called damages.
If there are minor cracks or any variation in color it is fixed(fixing charges $30
If the materials are broken it cannot be repaired(scrap value $120)
scrap value
What is a scrap ?:
If it is possible to sell damaged and wasted goods it is called a Scrap . Profits from the sale of waste products should be deducted from the cost of production of goods ..
Product Wastages sale (less from cost production) $130
Product damage sale(less from cost production) $120
...
Calculation of opening and closing inventory
Raw Metirial
➩ raw material purchased $1000 ( at $200 per unit) opening raw material $1000
➪ 4 pieces consumed to production closing raw material $200
work in progrss
➩ :The production of 30 ( at $29.7 per unit)wood pieces was made by 4 pieces of wood openig work in progrss $891
➪ :20 pieces consumed to production closing work in progress $297
Finished goods
➩ :The production of 160 ( at $5.225 per unit) Chair was made by 20 pieces of wood opening finished goods $836
➪ :120 chair sale to cutomer closing finished goods $206
Consumption is the difference between the opening stock and the closing stock
clarific
The closing stock of the month is the opening stock of the next month (year)
topics