inventory not only makes up a portion of the cost of goods sold but has to be purchased at the beginning of production to be processed into finished goods.
this type of inventory is call work-in-process (WIP). wip is a major investment for many companies, and reducing the amount of time that inventory spends in production is a good way to reduce the costs associated with this investment.
labor, materials and overhead are applied to goods continuously throughout production and the value of the WIP is estimated to be one half the final value. further discussion on WIP and reducing it is covered in chapters 9 and 15.