Explanation:A good example of raw material is lumber for a guitar manufacturer like Fender Guitars. When Fender gets a shipment of lumber, it records the lumber as raw material inventory because the wood will eventually be finished goods inventory or guitars.There are many different types of inventory across the business spectrum. Manufacturers have different types of inventory than retailers and retailers have different types of inventory than restaurants. These materials are most often associated with manufacturers.
In a nutshell:
- Raw materials are the input goods or inventory that a company needs to manufacture its products.
- Examples of raw materials include steel, oil, corn, grain, gasoline, lumber, forest resources, plastic, natural gas, coal, and minerals.
- Raw materials can be direct raw materials, which are directly used in the manufacturing process, such as wood for a chair.
- Indirect raw materials are not part of the final product but are instead used comprehensively in the production process.
- The value of direct raw materials inventory appears as a current asset