Glossary
What is raw material?
What raw material means for a small manufacturer, how it is costed, and how it moves from the warehouse into finished goods.
Updated
In short
Raw material is what a manufacturer buys to make its products. In SimpleERP raw materials are stocked products listed as components in a BOM, consumed at average cost when a work order completes.
Raw material is the material a manufacturer buys to turn into its products, such as steel sections, paint, fabric or packing. It is held as inventory until production uses it, then its cost moves into the finished goods. Bought-in parts that go into the product unchanged, such as nuts and bolts, are often called components but are treated the same way in stock and costing.
Raw material: a worked example
The raw materials Harbour Steel holds in the Main warehouse for its steel racks.
| Raw material | Unit | On hand | Average cost | Value |
|---|---|---|---|---|
| Slotted angle 6 ft | Nos | 480 | $31 | $14,880 |
| Shelf panel 36 × 18 in | Nos | 395 | $29 | $11,455 |
| Nut and bolt set | Nos | 4,800 | $0.20 | $960 |
| Powder coat paint | kg | 59.50 | $45 | $2,677.50 |
| Total raw material | $29,972.50 |
FAQ
Questions, answered
What are examples of raw materials?
For a steel furniture maker: steel sheets, angles and tubes, paint and fasteners. For a garment unit: fabric, thread and buttons. For a brick kiln: clay, fly ash and coal. Packing material is often treated as raw material too.
Is raw material an asset or an expense?
An asset while it is in your warehouse, shown in inventory on the balance sheet. It becomes part of the cost of finished goods when consumed, and an expense, cost of goods sold, when those goods are sold.
Can I reclaim VAT or GST on raw material?
Generally yes, when it is used to make taxable goods and you hold a valid tax invoice from the supplier. SimpleERP records the input tax from the supplier's bill. Where sales tax applies instead, tax paid on purchases is usually a cost, not a reclaim.
How do I value raw material at year end?
At cost or net realisable value, whichever is lower. In SimpleERP the stock on hand report gives the quantity and weighted average cost of each raw material; filter it by the raw material category and export it for your accountant.
Related
Keep reading
Finished goods
Products that have finished manufacturing and are ready to sell, valued at the material, labour and overhead that went into them.
Read moreBill of materials (BOM)
The recipe for a manufactured product: components, quantities per batch, expected scrap and extra cost per batch.
Read moreManufacturing
Bills of materials with scrap and cost roll-up, and work orders from plan to complete.
Read more
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