Types of Goods

There are two types of goods,

1. Consumer Goods
2. Producer Goods

Consumer Goods
Consumer goods are tangible goods that are purchased for direct consumption to
satisfy a human need or want.

Examples
 Computer
 House
 Books

Producer Goods
Producer goods are those goods which are used by producers as raw material and which
further undergo certain processes in order to make a final or consumer good.

Examples
 Machine Tools
 Raw Materials for Production

Difference Between Consumer and Producer Goods

Consumer Goods
 Those goods that are purchased or
available in the market to satisfy the
human need are called consumer goods.
Producer Goods
 Those goods that are available in the
market and are purchased as raw material
to produce another product, it is called
as Producer goods.

 It is the good which is produced at the  It is the good which is used in

end of the production line. the beginning of the production line.

 In wine making process, the wine is called  In the wine making process, as grapes are
as consumer good. used in the preparation of wine, they are
called as producer goods."

Lead Time
 Manuf acturing Lead Time
Lead time is the amount of time it takes from the moment a customer places an order to the moment the
product is out for a delivery. This includes any time taken to manufacture materials for the finished product or the time it
takes to receive the materials.

 All activities, wasteful or not, add up to the lead time.

Example

Manufacturing Lead Time

It is a period ranging from placing a Manufacturing Order (in order to
manufacture one lower-level items such as products, assemblies, and parts) to completing them. It consists of
the time during each process needed to manufacture items, in other words, the transportation time between
process lead time and each process, which is used to calculate the lead time for manufactured items.

Work in Process Overview

Work in Process
Work in process is the term for a product that is being manufactured, but which
is not yet completed. That is, WIP doesn't include raw materials that have not been used yet or completed goods. Work

process inventory is an asset The ending work in process inventory is simply the cost of partially completed work as of
ess are usually treated as synonyms. This is correct, but some people make a
s may refer specifically to products that are completed in a short time. Work in progress is then taken to mean production that takes cons

For most manufacturing operations, the costs that are included in an ending work in process inventory are raw materials
or parts used, direct labor and manufacturing overhead. For construction or other lengthy projects, the components of a
WIP are often listed as materials, wages and benefit costs for labor, subcontractor costs and expenses. Either way,
determining the value of work in progress can be time consuming, so companies try to minimize the WIP directly before
the end of the accounting period.

How to Calculate Total Work in Process

Companies usually calculate total work in process at the end of a month, year or other accounting period. This
WIP figure becomes the ending work in process inventory. It also used the beginning figure for the next accounting
period. The work in process formula is the beginning work in process amount, plus manufacturing costs minus the cost
of manufactured goods.

Suppose the ABC Widget Company has a beginning WIP inventory for the year of $8,000. Over the course of the year, the
company incurs manufacturing costs of $240,000 and produces finished goods costing $238,000. You have $8,000, plus
$240,000 minus $238,000, which leaves an ending work in process inventory of $10,000.

This work in process formula yields an estimate, rather than an exact figure. It does not take into account added costs
that may be incurred as work is completed, such as the cost of scrap, spoilage or the need to rework some items. As an
alternative, a company can do a physical count of the work in process to determine the actual amount of raw materials
in use and then to allocate other costs, based on the current stage of the manufacture of each unit. However, this is very
time-intensive, and generally, it is not done. Some companies don't record the WIP at all.
 WIP & TIP Ratios
Two measures that can be used to assess the magnitude of the work-in-process problem in a given factory are
the WIP ratio and the TIP ratio. The WIP ratio provides an indication of the amount of inventory-in-process
relative to the work actually being processed. It is the total quantity of a given part (or assembly) in the plant
or section of the plant divided by the quantity of the same part that is being processed (or assembled). The
WIP ratio can be obtained by dividing the WIP level determined from Eq. by the number of machines currently
engaged in processing parts. Using parameters previously defined, the divisor is calculated as

1:1 if we ignore the raw product that is waiting to be launched onto the line and the finished product that has been completed
the sum of the individual operation times for the part. Referring to the parameters defined for our earlier equations, we obtain

Again, the ideal TIP ratio is 1:1, and again it is very difficult to achieve such a low ratio in practice. In the
Merchant observation of Figure 2.6, the TIP ratio = 20:1.
It should be noted that the WIP and TIP ratios reduce to the same value in our simplified model of
manufacturing presented in this section. This can be demonstrated mathematically. In an actual factory
situation, the WIP and TIP ratios would not necessarily be equal, owing to the complexities and realities
encountered in the real world.
 Measures of Economic Worth
Economists and statisticians use several methods to track economic growth. The most well-known and
frequently tracked is the gross domestic product (GDP). Over time, however, some economists have
highlighted limitations and biases in the GDP calculation.

What is GDP
Gross domestic product (GDP) is the total value of everything produced in a country, regardless of if its citizens
or foreigners produced it. When economists talk about the "size" of the economy, they are referring to GDP
The components of GDP include personal consumption expenditures (C), business investments (I), government
spending (G), exports (X), and imports (M). GDP is equal to

C + I + G + (X - M)

How GDP Affects You

GDP impacts personal finance, investments, and job growth. Investors look at a nation's growth rate to
decide if they should adjust their asset allocation, as well as compare country growth rates to find their best
international opportunities. They purchase shares of companies that are in rapidly growing countries.

What Is the Producer Price Index (PPI)?

The Producer Price Index (PPI) program measures the
average change over time in the selling prices received by domestic producers for their output. The prices
included in the PPI are from the first commercial transaction for many products and some services.

What is the Consumer Price Index?

The consumer price index (CPI) measures changes in consumer prices. The Bureau of Labor Statistics
(BLS) calculates and publishes CPI data monthly.