Raw materials inventory
Raw materials inventory is the stock of unprocessed inputs held ready for use in production, recognised as a current asset. Costs transfer to work-in-progress as materials are issued to the factory floor.
See it move
Raw materials inventory opens the period at €20,000. Purchases of €45,000 are added as goods arrive from suppliers, and €50,000 of materials are issued to the factory floor and transferred into work-in-progress. What remains, €15,000, is the closing balance — inputs still held in stores at period end, not yet drawn into production.
The formula
Variables
- raw materials balance at the start of the period (€)
- cost of materials purchased and received from suppliers during the period (€)
- cost of materials requisitioned and transferred to work-in-progress (€)
When materials are issued to the factory floor, their cost leaves this account and enters work-in-progress. Any closing balance represents inputs still held in stores at period end.
Check yourself
A ceramics company purchases 500 kg of raw clay at €6 per kg. Freight to the factory totals €150. During the period 300 kg are issued to the production floor and 200 kg remain in stores. What value should appear in the raw materials inventory account at the period end?