INVENTORIES OF A MANUFACTURING BUSINESS

In the preceding example, assume all 10 houses were completed by the end of the year. In this case, the developer's inventory consists only of finished goods. Most manufacturing companies, however, typically account for three types of inventory:

1. Materials inventory -raw materials on hand and available for use in the manufacturing process.

2. Work in process inventory -partially completed goods on which production activities have been started but not yet completed.

3. Finished goods inventory -unsold finished products available for sale to customers. All three of these inventories are classified on the balance sheet as current assets. The cost of the materials inventory is based in its purchase price. The work in process and finished goods inventories are based on the costs of direct material, direct labor, and manufacturing
overhead assigned to them