Question

Identify 3 different types of inventory that manufacturing companies hold

1. Raw materials, work-in-progress, finished products
2. Raw materials, distribution inventory, packaging materials
3. Procured goods, in-process inventory, assembled products
4. Supplies inventory, semi-finished goods, completed items

Answer 1

The three types of inventory held by manufacturing companies are raw materials, work-in-progress, and finished products. These inventories play a role in managing supply chains and provide insights into business performance. Understanding inventory levels is also important for accurately calculating GDP.

Step-by-step explanation:

The three different types of inventory that manufacturing companies hold are:

1. Raw materials—these are the basic materials and components that are awaiting use in the production process.
2. Work-in-progress (WIP)—this refers to partially finished goods that are still undergoing manufacturing processes.
3. Finished products—these are completed goods that are ready to be sold to consumers but have not yet been sold or distributed.

Understanding these types of inventory is crucial for managing the supply chain effectively. For example, an increase in inventory levels can indicate that business is not going as well as expected, leading to more goods sitting on shelves. Conversely, lower inventories may suggest better-than-anticipated business, with products moving faster from warehouses to consumers. In the context of the Gross Domestic Product (GDP), inventories represent a small category that is counted as part of the final output of goods and services, ensuring that there is no double counting of intermediate goods or labour value in the production chain.