Raw materials inventory

Definition

Raw materials inventory consists of the basic materials and components that are used to produce a product but have not yet been processed or assembled. It is one of the three major components of product costs in job order costing systems.

5 Must Know Facts For Your Next Test

1. Raw materials inventory is recorded as a current asset on the balance sheet.
2. The cost of raw materials used in production is transferred to Work in Process (WIP) Inventory.
3. Proper management of raw materials inventory helps prevent production delays and reduce carrying costs.
4. In job order costing, raw materials requisition slips are used to trace the cost of raw materials to specific jobs.
5. Both direct and indirect raw materials are included in raw materials inventory but are accounted for differently during cost allocation.

Review Questions

• What happens to the cost of raw materials when they are put into production?
• How does proper management of raw materials inventory benefit a company?
• What document is used in job order costing to trace the cost of raw materials to specific jobs?

Related terms

Work In Process (WIP) Inventory: Represents partially finished goods that require further processing before they can be sold.

Finished Goods Inventory: Completed products that are ready for sale but have not yet been sold.

Direct Materials: Raw materials that can be directly traced to specific units or batches of products being manufactured.