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What are raw materials?

Raw materials are unfinished materials or natural resources used to produce or manufacture finished products for sale. These materials can be used in their unprocessed or processed form as found suitable. Examples include cotton, crude oil, coal, rubber blanks, mineral ores, wood, etc.

Why are raw materials an essential aspect of inventory management?

Raw materials form an essential aspect of inventory management Inventory Management Inventory management in business refers to managing order processing, manufacturing, storage, and selling raw materials and finished goods. It ensures the right type of goods reach the right place in the right quantity at the right time and at the right price.

What is the cost of goods sold for raw materials?

When goods are sold, raw materials prices reflect in the Cost of Goods Sold Cost Of Goods Sold The Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs.

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Understanding Raw Materials

Raw materials form an essential aspect of inventory management Inventory Management Inventory management in business refers to managing order processing, manufacturing, storage, and selling raw materials and finished goods. It ensures the right type of goods reach the right place in the right quantity at the right time and at the right price.

Sources Of Raw Materials

These materials can be classified into three categories, depending on how they are derived:

Practical Examples

Let us consider the following raw materials examples for an in-depth understanding of the concept:

Accounting For Raw Material

Budgeting and accounting of raw materials inventory Raw Materials Inventory Raw materials inventory is the cost of products in the inventory of the company which has not been used for finished products and work in progress inventory. Raw material inventory is part of inventory cost which is reported under current assets on the balance sheet.

Recommended Articles

This has been a guide to Raw Materials and its meaning. Here we discuss accounting for raw materials along with sources, types, and examples. You can learn more from the following articles –