Inventory Management

Inventory Management

Inventory Management

The process of ordering, storing, using, and selling a company’s inventory, including raw materials, components, and finished products, as well as warehousing and processing.

Finished Goods Inventory

Manufactured items that are completed and ready for sale.

Work in Process

The portion of manufactured inventory that has been placed into the production process but is not yet complete.

Raw Materials

Basic goods that will be used in production but have not yet been placed into production.

Just-In-Time (JIT) Inventory Methods

A method that allows companies to save money and reduce waste by only keeping the inventory needed to produce and sell products.

Material Requirements Planning (MRP)

A method in inventory management that is sales-forecast dependent and requires accurate sales records for planning inventory needs and communicating with materials suppliers.

Economic Order Quantity (EOQ)

A model used in inventory management to calculate the number of units a company should add to inventory with each batch order to reduce total inventory costs.

Days Sales of Inventory (DSI)

The average number of days it takes for a firm to sell off inventory, indicating how well a firm is managing its inventory or if it has inventory that is difficult to sell.

Last in, First out (LIFO) Method

Assumes that the latest goods purchased are the first to be sold.

First in, First out (FIFO) Method

Assumes that the earliest goods purchased are the first to be sold.

Average cost

Allocates the cost of goods available for sale based on the weighted average unit cost incurred

Specific Identification

Works well with unique or uniquely marked inventory items. What you paid for that particular item now becomes the cost of goods sold.

Finished Goods Inventory

Manufactured items that are completed and ready for sale.

Work in Process

Portion of manufactured inventory that ahs been placed into the production process but is not yet complete.

Raw Materials

Basic goods that will be used in production but have not yet been placed into production.

Taking a Physical Inventory

Counting, weighing, or measuring each kind of inventory on hand.

Ownership of Goods

Must answer: Do all of the goods included in the count belong to the company? Does the company own any goods that were not included in the count

Goods in Transit

The company may have purchased goods that have not yet been received, or it may have sold goods that have not yet been received, or it may have sold goods that have not yet been delivered. It should be included in the inventory of the company that has legal title to the goods.

FOB (Free on Board)

Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. The ownership of the goods remains with the seller until the goods reach the buyer.

Consigned Goods

It is common to hold the goods of other parties and try to sell the goods for them for a fee, but without taking ownership of the goods.