INVENTORY

Inventory consists of land in the process of development, undeveloped land, developed lots, completed homes, raw land scheduled for development, and land not owned under option agreements in Texas and Georgia. Inventory is valued at cost unless the carrying value is determined to be not recoverable in which case the affected inventory is written down to fair value. Cost includes any related pre-acquisition costs that are directly identifiable with a specific property so long as those pre-acquisition costs are recoverable at the sale of the property.

A summary of inventory is as follows (in thousands):



	September 30, 2016		December 31, 2015
Completed home inventory and residential lots held for sale	$	109,004	$	85,342
Work in process	292,045		236,383
Undeveloped land	3,481		6,193
Land not owned under option agreements	10,712		16,214
Total Inventory	$	415,242	$	344,132

The Company capitalizes interest costs incurred to inventory during active development and other qualifying activities. Interest capitalized as cost of inventory is charged to cost of sales as related homes, land and/or lots are closed. Interest incurred on undeveloped land is directly expensed and included in interest expense in our consolidated statements of income.

Interest costs incurred, capitalized and expensed were as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Interest capitalized at beginning of period	$	8,909		$	9,854		$	9,085		$	3,713
Interest incurred	742			1,890			2,267			9,238
Interest charged to cost of sales	(546		)	(1,389		)	(2,247		)	(2,315		)
Interest charged to interest expense	—			—			—			(281		)
Interest capitalized at end of period	$	9,105		$	10,355		$	9,105		$	10,355