Explain the difference between Raw Materials Inventory Work

Explain the difference between Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory. (5marks) Raw Material: YOFK-IR Process. Finished Goods

Solution

Raw Material Inventory - It refers to the inventory of the inputs which have been purchased but are yet to be transferred to the production process i.e. they are lying in their original state in the warehouse.

e.g. For a pizza manufacturer, the inventory of flour and vegetables in the store is raw material inventory.

Work in Process Inventory - It refers to the total inventory of the goods which are partially complete i.e. they are in the process of becoming finished goods. But only a certain percentage work ( not complete ) has been done on them.

e.g. For a pizza manufacturer, inventory of uncooked pizza bases covered with vegetables is work in process inventory.

Finished Goods Inventory - It refers to the Inventory of the goods which have completed the production process and are ready for sales. 100% work with regards to material and overhead has been done on these goods.

e.g. For a pizza manufacturer, inventory of cooked and ready to serve pizza is the finished goods inventory.