In a cookie manufacturing company, the raw materials are items like milk, sugar, and flour that are used in the different stages of production. Raw materials consist of all the items that are processed to make the final product. To make it easier to understand, let’s continue with the example of a cookie manufacturer : Raw materials What are the different types of inventory? Iii) An asset which is in process but is meant for sale in the market Ii) An asset that can be realized for revenue generation or has a value for exchange, or If we break down all the definitions, we can see that there are certain similarities: Meaning of inventory: Breaking down the definitions In the hotel industry, a vacant room is inventory for the owner. In a service industry, since there is no exchange of physical stock, the inventory is mostly intangible in nature. So the service industry inventory mostly includes the steps involved before completing a sale.Įxample: For a research consultancy firm, inventory consists of all the information collected for a project. In a manufacturing business, inventory is not only the final product manufactured and ready to sell, but also the raw materials used in production and the semi-finished goods in the warehouse or on the factory floor.Įxample: For a cookie manufacturer, inventory will include the packets of cookies that are ready to sell, the semi-finished stock of cookies that haven’t been cooled or packed yet, the cookies set aside for quality checking, and raw materials like sugar, milk, and flour. Inventory refers to all the items, goods, merchandise, and materials held by a business for selling in the market to earn a profit.Įxample: If a newspaper vendor uses a vehicle to deliver newspapers to the customers, only the newspaper will be considered inventory. Here’s a small list of definitions: Most common definition The definition of inventory changes slightly depending on the industry.
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