What are Raw Materials?
Raw materials are commodities, parts or substances that are assembled or processed to form a final product.
How Do Raw Materials Work?
For example, the raw materials involved in chocolate chip cookies are butter, sugar, eggs, flour, vanilla, baking powder and chocolate.
Why Do Raw Materials Matter?
Raw materials determine the quality and cost of producing an item. Many raw materials are commodities that trade on the futures market. For many companies, acquiring raw materials at a good price makes the difference between having a profitable year and having an unprofitable year.
Raw materials may be considered unfinished goods and thus recorded as inventory on the balance sheet.