While manufacturing a product or providing a service, a business may need to use components or byproducts. These consumptions can be divided into:
- Raw materials and intermediate components
- Goods to be sold
Raw materials, intermediate components and consumables are costs that are directly attributable to the production of a good or a service, thus including everything that is used to manufacture the final product or service.
In most situations the raw materials and consumables items are variable costs, meaning that these items will vary along with the volume of production.
It is common for a company to hold an inventory or stock of its consumptions.
Raw Materials and intermediate components
Raw material are also called direct material. In a short definition, the raw materials are the inputs (commodities, parts or substances) that are used in the manufacturing, transformation or assembly process of a product. Examples of raw materials:
- Non processed food
More often than not, the inputs that a factory receives have gone through some sort of previous processing. These are intermediate components:
- The parts that are used in the production of a car have gone through some sort of previous processing. In most cases, an automotive factory is just an assembly line where most components of the car are put together. The seats, the speedometers, the glasses, the lights and many other parts have been manufactured by the suppliers.
- While manufacturing clothes, a factory does not usually use raw cotton or any other raw material. It uses fabrics that have be previously manufactured by suppliers.
Consumables are supplies that are used in the production process, such:
- as machine oil in a factory.
- printing ink in a printing company. Printing ink can also be stated as a raw material if it can be precisely measured the amount that is consumed per impression or work – be aware that ink or toners for office use in non graphic companies should be deemed as an office material in operating expenses.
The mains difference between raw materials and consumables is that become components or are transformed to give ways to the final product or service, whilst the consumables are needed for productions but are not incorporated in the product or service. It is usually difficult to assign how much (quantity) of a given consumable is used in the manufacturing of one product.
Raw materials and consumables in services
Although it is usually not commonly accounted as such, there are certain consumptions of raw materials or consumables that are needed in services. Take the following example.
Goods to be sold
Goods to be sold are items that the company acquires to be resold in the exact same condition in which they are bought. Retail stores buy manufactured products that are then resold to the final consumer. Goods to be sold are “consumed” in the sense that they are necessary for the retail activity, but are not transformed or manufactured.
Goods to be sold are also variable costs.
Calculating raw materials and consumables with CASFLOAPP
There are two options to forecast the raw materials and the consumables in CASFLOAPP:
- as a percentage of the price of the product or service
- as the sum items that compose the product or service