What are the types of inventory? Direct and indirect inventory?

There are three main types of inventory:

1. Raw materials inventory: These are the materials and components that are used to create the final product. Examples include wood, steel, fabric, and electronic components.

2. Work-in-progress inventory: This type of inventory includes partially completed products that are still in the production process. These items have not yet been completed but are in various stages of production.

3. Finished goods inventory: These are the final products that are ready to be sold to customers. Examples include clothing, electronics, furniture, and food products.

Direct inventory refers to the inventory that is directly used in the production process, such as raw materials and work-in-progress inventory. Indirect inventory, on the other hand, refers to items that are not directly used in production but are necessary for the operation of the business, such as office supplies, maintenance materials, and packaging materials.

Direct Inventory

- Raw materials used in the production process
- Components or parts used to assemble finished goods
- Finished goods ready for sale to customers

Indirect Inventory

- Maintenance, repair, and operating (MRO) supplies
- Office supplies
- Tools and equipment used in the production process
- Spare parts not immediately required for production but held as a backup
- Safety supplies
- Utilities (e.g., electricity, water)

Key Differences Between Direct and Indirect Inventory

- Costing: Direct inventory is assigned to specific products, while indirect inventory is allocated based on its use or consumption.
- Valuation: Direct inventory is typically valued using actual cost or standard cost, while indirect inventory may be valued using average cost or FIFO.
- Usage: Direct inventory is consumed in the production process, while indirect inventory supports the production process but is not directly consumed.
- Control: Direct inventory is generally more tightly controlled than indirect inventory due to its direct impact on production costs.
- Management: Direct inventory is managed primarily by production planning and control, while indirect inventory is managed by various departments, including maintenance, purchasing, and administration.

What is inventery