Inventory:

The usual categories of inventory in manufacturing are following:

Raw Materials

Materials to which the manufacturer has not added value yet.

WIP

Materials to which the manufacturer has added up some of the value but has more to add still.

Finished Goods

Goods ready for shipment to the customers, with no more value to be added. The following measure may be applied to each or all of these inventory categories.

Days of Inventory = Quantity of Inventory /Demand 

This measure represents how several days of production or sales may be maintained solely from inventory. All things equal, the smaller the DOI, the more efficiently inventory is being used. The quantity of inventory figure is best determined from a physical count of items on hand, that is, the number of units, cubic feet, containers, pounds, etc. Demand must be estimated using the most recent daily rate at which an item is pushed or pulled through the system; specifically, demand for raw materials and WIP must be the rate at which items are consumed to make finished outputs, and the finished output rate must be the rate necessary to satisfy customer demand (no more, no less). The days of inventory is also computed as :

 Days of Inventory = (Average Inventory Investment × Days per year) /Annual cost of goods sold                      

Where inventory investment and cost of goods sold are achieved from the balance sheet and income statement, respectively.