Classification of Inventories

Inventory can be classified as:

1. Direct Inventories
2. Indirect Inventories

Direct Inventories:

The inventories which play a direct role in the manufacturing of a product and become an integral part of the finished product are called direct inventories. Direct inventories are further classified as:

(a) Raw Materials: These are the materials which are machined or processed before they are ready to be used in assembly of the finished products. They include items like steel (angles, channels, flats, tubes, plates, shafts etc.), copper, tin, lead, cotton, rubber, forging, castings, leather, wood etc.

(b) In-Process Inventories (Work in Progress): In process inventories are the semi-finished goods at various stages of manufacturing. The output of one machine is fed to another machine for further processing. Raw materials become work in progress at the end of first operation and remain in that classification until they become final parts of finished goods.

(c) Purchased Parts: These are some purchased items (components, sub-assemblies, finished parts etc.) purchased from outside suppliers instead of manufacturing in the factory itself. For example, ball bearings, screw, nuts, bolts, tyres required in automobile industries.

(d) Finished Goods: Finished goods inventories contain the output of the production process. These are finished (final) products ready for dispatching to the customers.