Streamline your product sales cycle for inventory

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in this video we're going to talk about the different types of inventory uh for a manufacturing firm and it's important to specify manufacturing uh firm because a merchandising firm just buys inventory and then sells inventory the inventory that giv already put together but a manufacturing firm uh we're going to have some nuances here that that is what we're going to talk about so first of all we've already kind of talked about things like uh direct materials direct labor and manufacturing overhead and how these costs these costs go into inventory and then they flow out of the firm through cost of goods sold right so what we're looking at specifically here is this inventory component and what we find is that there's actually there's actually kind of subcategories of this so we've got we've got raw materials which I'll just put as RM right now we've got work in process which is whip and then we've got finished goods and in the rest of this video I'm going to explain each of these in more detail so let me just scroll down a little bit here so so let's talk about uh raw materials and I'll just just abbreviate this so raw materials we're talking about uh let's say that you were making a car it would be something like steel right this this is the actual materials used to make the product right so this is uh but now when we think about when we think about this this whip component right now we've got the work in process now how is this different how does this differ from from the raw materials well now we've done some work uh to the steel or whatever the raw materials are uh we we've done some work to it but it's in process that means it's not finished yet right so so we go ahead we we purchase uh some materials uh and then we apply some labor some overhead whatever what whatever we do to the product we start doing it uh but it's not complete and so we can't just say anymore well it's it's raw materials it's just sitting there we've actually done some work but it's in process it basically means it's incomplete uh so this is incomplete it's like a partially assembled uh unit okay so it's it's a it's a bicycle that's half complete we haven't put it together yet uh but then once we actually complete it that's where we get into the the finished goods uh part of so finished goods now this is this is the complete uh bicycle this is this is an actual unit that's ready to be sold unit ready to be sold so let's let's take the bicycle thing for a moment here so so let's say it's a steel bicycle our raw material we start with is steel then we do some work to it we start assembling it but but the bicycle is not complete it's incomplete it's just sitting there half done and then when we finish it uh it goes into to finish good so things go raw materials to work in process to to finish goods and so the these are all different types of inventory so if we looked at a manufacturing firm's uh balance sheet right if we looked at the balance sheet let me let me give an example let's say we had an said we had uh some Auto production let's say we have tomies Tomy uh Tommy's Car production so when we look at the balance sheet we might see something like this we might see inventory not all firms will break it out like this but if it this inventory and then we've got raw materials and let's say that we have raw materials of of 40,000 and then we've got whip so this is work in process incomplete partially assembled unit and that's 35,000 and then we've got finished goods just abbreviate there and that's 50,000 now what do we have here total looks like we have 125,000 so what does that mean that means that our actual asset our actual total inventory so let just put here total inventory is 125,000 but we can break that out out as follows and say we've got 40,000 in raw materials 35,000 and partially assembled unfinished units we've done work to them but they're not done yet and then we've got $50,000 of inventory that is ready it's good to go it's ready to be sold and go out the door so just remember this this this really simple basic equation is that raw materials plus whip Plus finished goods if we add all those together that's going to give us total inventory