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In engineering economic (chemical engineer) evaluation, what's the definition for these terms?

In engineering economic (chemical engineer) evaluation, what's the definition for these terms?

Extended credit

In process inventory

Product inventory

Please explain using language that can be understood by laymen, preferably adding day to day analogies.  

Solutions

Expert Solution

Extended credit: This term refers to allow to purchase or to owe money. For example you are running a bakery business and everymonth you purchase raw material for your bakery items but this month you didn't have sales but you recieved a big order which requires more raw material and you went to buy from vendor which you regularly buy from and ask him to lend you some raw material for this month on credit which is more than your usual credit limit contract with him. The vendor agrees to lend extra raw material on credit more than usual this is knwon as extended credit. Same in process industry the raw material which you get above credit limit is called extended credit.

In process inventory: This means the material which is not yet finished but is required during manufacture of product and has value at particular instant of time in manufacturing. Say if in same business above you start making the order products then whatever raw material is with you which is not yet used but is about to be used is called in process inventory. In same way during processsing fo chemical all the raw materials kept in house which are continously used for manufacturing have monitory value and are called in processs inventory.

Product inventory: This refers to amount or quantity of finished product which is kept in store for further dispatch. In above example say the customer says he will take order after few days due to delay in transportation because of covid-19 situation but you have prepared his entire order which is ready to be dispatched. The amount of product here you hold with you which can be exported is called product inventory. In same way all the finished product of chemical process industry which is holded and ready to be sold is called product inventory having time value of money.


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