Raw Materials Inventory

This video discusses Raw Materials Inventory.
Manufacturers have three types of inventory: Raw Materials Inventory, Work-in-Process Inventory, and Finished Goods Inventory. Raw materials are things that will be physically incorporated into the final product that the company is manufacturing. Lumber would be raw material for house, steel would be raw material for a car, etc.
Once raw materials are put into production, they became known as either direct materials or indirect materials. Direct materials are raw materials that can be directly traced to the finished product (e.g., aluminum used to build an engine) and indirect materials are raw materials that cannot be easily traced to the finished product (e.g., grease that was used in building an engine). Ultimately, all raw materials are converted to Work-in-Process Inventory, which is later converted to Finished Goods Inventory, and which is finally expensed through Cost of Goods Sold when the inventory is sold.
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