Inventory

3 Months Ended

Apr. 02, 2020

Inventory consists of raw materials used in the production process, work-in-process, which is direct material, direct labor, overhead and purchases, and capitalized preproduction costs. Raw materials are stated at lower of cost (principally on an actual or average cost basis) or net realizable value. Capitalized pre-production costs include certain contract costs, including applicable overhead, incurred before a product is manufactured on a recurring basis. These costs are typically amortized over a period that is consistent with the satisfaction of the underlying performance obligations to which these relate.



	April 2, 2020		December 31, 2019
Raw materials	$	321.0	$	253.1
Work-in-process⁽¹⁾	803.1		822.8
Finished goods	16.8		14.5
Product inventory	1,140.9		1,090.4
Capitalized pre-production	27.8		28.4
Total inventory, net	$	1,168.7	$	1,118.8

(1)

Work-in-process inventory includes direct labor, direct material, overhead, and purchases on contracts for which revenue is recognized at a point in time as well as sub-assembly parts that have not been issued to production on contracts for which revenue is recognized using the input method. For the periods ended April 2, 2020 and December 31, 2019, work-in-process inventory includes $158.2 and $157.2, respectively, of costs incurred in anticipation of specific contracts and no impairments were recorded in the period.

Product inventory, summarized in the table above, is shown net of valuation reserves of $42.2 and $39.0 as of April 2, 2020 and December 31, 2019, respectively.

Excess capacity and abnormal costs are excluded from inventory and recognized as expense in the period incurred. Cost of sales for the period ended April 2, 2020 includes the impact of $73.4 in excess capacity costs related to the B737 MAX production schedule adjustment that began on January 1, 2020, and the impact of $25.4 in abnormal costs of temporary workforce adjustments resulting from the COVID-19 Boeing production suspension that began on March 25, 2020.