Question

Inventory comes in many shapes and sizes, explain two types of inventory?!

Answer 1

Two types of inventory are as follows:

i) Raw Materials: Raw materials refer to inventory items that are used in the manufacturing of the final products. Raw materials are the primary resources need in the production of finished goods by the company. This type of inventory may be further sub-categorized into two types - direct materials and indirect materials. Direct materials are raw materials that are directly converted into finished goods. They are not used in the manufacturing process. For example, the glass used to create a windshield in the manufacturing of a car may be referred to as direct material. Indirect materials are those resources that are used in the manufacturing process but don't form a part of the finished good. For example, oils and lubricants used in the machinery during the manufacturing of a car would be considered as indirect material.

ii) Finished Goods: Finished goods are the inventory items that are the final products of a manufacturing unit which can be directly offered to the end-users or customers for purchase. These inventory items form the short term assets of a company as they are likely to be retained only for a short period before being sold to the customers. For example, a newly manufactured car would be the finished good of a car manufacturer.