INVENTORIES

Inventories consist of raw materials and components, such as drivers, metal sheet and coil stock and molded parts; work in process inventories, such as frames and reflectors; and finished goods, including completed fixtures and systems, and accessories. All inventories are stated at the lower of cost or market value with cost determined using the first-in, first-out (FIFO) method. Orion reduces the carrying value of its inventories for differences between the cost and estimated net realizable value, taking into consideration usage in the preceding 9 to 24 months, expected demand, and other information indicating obsolescence. Orion records, as a charge to cost of product revenue, the amount required to reduce the carrying value of inventory to net realizable value. As of March 31, 2017 and 2016, Orion's inventory balances were as follows (dollars in thousands):



	Cost		Obsolescence Reserve			Net
As of March 31, 2017
Raw materials and components	$	8,104	$	(1,807	)	$	6,297
Work in process	1,918		(329		)	1,589
Finished goods	7,044		(1,337		)	5,707
Total	$	17,066	$	(3,473	)	$	13,593

As of March 31, 2016
Raw materials and components	$	10,556	$	(1,052	)	$	9,504
Work in process	2,045		(119		)	1,926
Finished goods	6,550		(956		)	5,594
Total	$	19,151	$	(2,127	)	$	17,024

Costs associated with the procurement and warehousing of inventories, such as inbound freight charges and purchasing and receiving costs, are also included in cost of product revenue.

In fiscal 2017, Orion increased its obsolescence reserve by $1,346,000. The reserve was increased by $1,671,000 related to its fluorescent and LED exterior products. The reserve increase was reduced by disposals during the year of fully reserved inventory items along with other inventory related activities. Orion’s customer preference is for higher performing LED lighting technologies rather than lower-priced earlier generation solutions.