Categories Of Inventories In Manufacturing Firms

Question 1

What is the ‘finished goods’ category?

Answer 1

Inventory that’s ready for sale.

Question 2

What is the ‘work-in progress’ category?

Answer 2

Inventory that’s partly complete.

Question 3

What is the ‘raw materials’ category?

Answer 3

Source products that are required when manufacturing the good for sale.

Question 4

What is the ‘consumables’ category?

Answer 4

Immaterial items that are required in the production process.

Question 5

What’s the ‘periodic inventory control system’?

Answer 5

The number of items in inventory are physically checked periodically and orders are made in light of expected demand relative to the number of items in stores.

• Review period is usually fixed and hence high levels of inventory are typically held.
• In many instances the business closes for the counts, or it’s performed overnight.

Question 6

What’s the ‘perpetual inventory control system’?

Answer 6

Constant monitoring of inventory levels and frequent recording. A computerised control system usually with point of sale technology which records inventory and issues from stores.
- Physical counts take place continuously, are organised and focus on rotated areas.

Question 7

What is ‘purchase cost’?

Answer 7

• Invoice price, net of trade discount and recoverable VAT.
• Import duties and other taxes that aren’t recoverable.
• Transport, delivery and handling costs.
• Other costs that directly attribute to obtaining the inventory.

Question 8

How is inventory valued?

Answer 8

The comparison of the cost and net realisable value needs to be made in respect of each item in the inventory separately.

Question 9

What is the ‘net realisable value’?

Answer 9

Estimated proceeds of the sale of items of inventory less all further costs to completion and less all costs to be incurred in marketing, selling and distributing directly related to the items in question.

Question 10

What is ‘stores ledger’?

Answer 10

A record of the quantity and value of receipts, issues and balances of individual items of inventory. The system is used for both direct materials and finished goods inventories.

• Similar to a perpetual inventory system which records the quantity on it’s own and ‘quantity and value’ together.

Question 11

What is ‘fungible’ inventory?

Answer 11

Indistinguishable goods where it’s not possible or practicable to identify the particular batch(es) of purchases in inventory.