What is raw materials inventory?
Raw materials inventory is the stock of materials and components a manufacturer has bought but not yet put into production. Once issued to the factory floor their cost moves into work in progress, and eventually into finished goods.
Formula
Ending raw materials = beginning raw materials + purchases − raw materials used
Worked example
You began with 12,000.00 of raw materials and bought 48,000.00, making 60,000.00 available. Production used 45,000.00, so 15,000.00 is left.
How to use the raw materials inventory calculator
- Enter your figures: beginning raw materials, raw materials purchased and raw materials used in production.
- Read the result. It updates as you type, so there is no button to press.
- Try other numbers to compare scenarios. Reset brings back the example values.
Getting it right
- Include freight and duties in the purchase cost, and take off returns to suppliers.
- Compare the ending balance with a physical count. A gap points to waste, theft or issues that were not recorded.
- Rearranged, the same formula gives materials used: beginning plus purchases minus ending.
Frequently asked questions
How do you calculate ending raw materials inventory?
Add raw materials purchased in the period to the beginning balance, then subtract the cost of raw materials used in production.
What is the difference between direct and indirect raw materials?
Direct materials become part of the product, like timber in a table. Indirect materials are used up in making it, like glue or sandpaper, and are usually treated as overhead.
Where do raw materials go on the balance sheet?
They are a current asset, reported within inventory alongside work in progress and finished goods.