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In a manufacturing environment, there’s usually a specific process that inventory takes on its journey to become a finished product. The actual process can vary from one company to another depending on the product, as well as the production model. This article looks at basic accounting methods of inventory valuation as materials are used in the manufacturing process.

Manufacturing Inventory Process and Valuation

In order to put a value on inventory throughout the manufacturing process, many factors can come into play at certain points in the production progression. As an example, overhead costs that are applied to inventory costs will have varying values at certain points in production. In simplistic accounting terms, inventory value is generally broken down into three phases:

• Raw Materials
• Work-In-Process
• Finished Goods

Inventory and Accounting for Raw Materials

Raw materials are inventory that has not yet been used in the manufacturing process. Generally it consists of any inventory that is purchased from suppliers in its unused form. Putting a value on raw materials can be as simple as using the acquisition price from the suppliers. However depending on how associated costs are accounted for, there can be other factors involved in valuation.

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