Inventory value when as works-in-progress comprises of material cost, labor cost, and overhead costs. This is so with finished goods also. If the costs other than material cost are duly separated (by adopting a proper costing system,) it will be possible to view all materials together wherever, or in whichever form, they lie - as raw materials, works-in-progress or finished goods. After such separation and then aggregation of quantities of inventory for each of the different items (say, steel, cement, wood, etc.), the value of the inventory of the several items can be individually listed for management's information.
To evaluate the inventories on behalf of the organisation taking all the several items together, after they have been individually listed, two approaches are in practice - viz. "global approach" and ''individual approach". Consider, for example, five major items in an organisation whose closing inventories are valued as given in Table.
In the "global approach", only the final totals are taken for comparison; i.e. the comparison is between Rs. 23,24,000 by cost of the five items of material and Rs. 22,48,000 by market value of the same items, By comparing these "global" sums for all items of inventory the "lower of cost and market value" for all the 5 items taken together will be Rs. 22,48,000. The last column is irrelevant.
In the "individual approach", the "lower of cost and market value" for each of the items as has been already indicated in the last column is summed up and the sum mated value of the inventories of the 5 items taken together will be Rs. 21,90,000. The last column alone will be relevant.
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