Inventory Classifications

Inventory is idle resources that have future economic value. It indicates that it may be available in different forms depending upon the production cycle stage it is in. Classification of inventory is done on this basis and thus the different classifications of inventory are as follows:


Raw materials - Raw materials are input goods intended for combination and/or conversion through the manufacturing process into semi-finished or finished goods. They change their form and become part of the finished product.

Components and Parts - Just as raw materials are converted to finished goods in a manufacturing operation, components and parts are assembled into finished goods in an assembly operation.

Maintenance, repair and operating

(MRO) - These include parts, supplies, and materials used in or consumed by routine maintenance and repair of operating equipment, or in support of operations.

In-process goods - These are goods in the process of manufacturing and only partially completed. They are usually measured for accounting purposes in between significant conversion phases.

In-process inventories provide the flexibility necessary to deal with variations in demand between different phases of manufacturing.

Finished goods
- These represent the completed conversion of raw materials into the final product. They are goods ready for sale and shipment.

Resale goods - These are goods acquired for resale. Such goods may be purchased by a wholesaler for resale to distributors, or by distributors for resale to consumers, etc.

Capital goods - These are items (such as equipment) that are not used up or consumed during a single operating period, but have extended useful lives and must be expensed over multiple operating periods.

Tax laws require that such an item be capitalized, and a predetermined percentage of its cost be recognized as an


expense each operating period, over a predetermined time frame, according to equipment classes.

Construction materials
- These are raw materials and components for construction projects such as a building, bridge, etc.

Hard goods/soft goods - What one identifies as hard goods and soft goods will vary depending on the industry involved. For example, in data processing, hard goods include apparatus such as computers and terminals, while soft goods include software, data storage media, and the like.


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