Likewise when production is completed and inventory

Likewise, when production is completed and inventory is prepared for disposition

418 Chapter 11
Conversion Processes and Controls
to the warehouse or to the customer, it becomes finished goods inventory . These
three classifications of inventory—raw materials, work ‐ in ‐ process, and finished
goods—are important in the accounting processes.
Inventory status reports are prepared at various stages of production to docu-
ment the extent of work completed and the resulting level of inventory. Inventory
status reports provide detail on the resources used in production to ‐ date, as well as
the resources available to complete production of the goods. These reports should
be monitored regularly so that the scheduling department can be notified if changes
need to be made.
Inventory warehousing involves managing the holding area for finished goods
awaiting sale. Companies maintain inventories of finished goods when they pro-
duce fairly homogeneous products or when it is important for them to be able to
fill sales orders quickly. Accordingly, an inventory warehouse should be well organ-
ized so that the items can be located and moved into the shipping department as
quickly as possible. Likewise, it should be controlled in order to prevent theft, loss,
or damage.
The goal of inventory control is to minimize the cost of maintaining inventories.
Whether inventory is maintained in the form of raw materials, work ‐ in ‐ process, or
finished goods, most companies weigh the costs and benefits of carrying invento-
ries. The costs are generally incurred in the areas of stores and warehousing, whereas
the benefits tend to be more difficult to measure because they relate to keeping
customers satisfied. Ideally, the elimination of inventories is desirable, except in
cases where inventory is needed immediately due to sales that may result from
unexpected changes in production scheduling or increased demand for the
company’s products.
Operations
Operations is the term commonly used to refer to the major business activity in
which a company engages. It is often synonymous with the terms “production” and
“manufacturing.” This function involves the day ‐ to ‐ day performance of production
activities, including monitoring the related costs, time, and quality.
Depending on the size of the company and the diversity of its product offerings,
operations may be performed by a variety of methods, including the following:
• Continuous processing of homogeneous products
• Batch processing, where each batch contains homogeneous products, but each
batch is not necessarily the same type of product
• Custom, made ‐ to ‐ order processing, where each order may be unique.
A company’s production process may be conducted in a single operating facility or
multiple locations and stations. Regardless of its production complexity as deter-
mined by the method of production and the number of locations, each scheduled
production order follows a designated physical flow through the production pro-