Materials in production are what the finished product consists of. Materials and time spent on putting them together. In production you use two types of materials – those that the product mostly consists of and side materials to help you to put the product together, i.e. glue, screws and so on. When we talk about ‘treatment of materials used in production’ in accounting terms, we talk about the usage of materials and their cost.
It’s important to map materials used for certain products, measure their usage during a defined period and match this against items produced. This way you can calculate the amount of certain material spent on certain products. Furthermore, factor also in any waste that’s abnormal (e.g. something was spilled, there were products that went into being scrapped etc.) – usage on that should be excluded from the ‘standard’ usage per product.
So how you’d treat materials if you’re producing is as follows:
- You keep them in conditions as they ought to be kept, safely stored.
- In your accounting you’d measure their usage against items manufactured to understand and calculate their ‘standard usage’.
This ‘standard usage’ is something you’d measure into cost of inventory for goods that stay in stock at period end for instance.