Why do manufacturers and

service providers spend different

percentages of their income on

inventories? Provide an example

for each type of business.

Inventories include the cost of raw materials, the cost of work in progress, and finished goods. Manufactures and service providers will spend differently on inventories.

Explanation:

Manufacturers

For manufacturers, Inventory costs will make up to 30 percent of their total expenses. For production to happen, raw materials must be purchased. In practice, raw materials are bought in bulk to avoid stocks out. For the sales process to be continuous, production occurs in bulk. At any given time, there will be a stock of raw materials and finished goods. These cost adds to inventory.

For example, a company producing furniture will need wood as raw material. In their store, you find some quantity of wood as raw materials. The workshop will have work in progress while the warehouse will have finished items. The company must spend a sizable amount of its income on inventory to ensure production does not come to a halt.

Service Providers

Service providers don't sell products; hence, they don't need materials. Consumables such as fuel and stationery make up their inventories.

For example, a legal firm offering legal services will need office space and office consumables whose costs are low. The cost of inventories will be about 10 percent or less of their income.