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Raw materials are materials or substances used in the primary production or manufacturing of goods. Raw materials are often referred to as
commodities, which are bought and sold on commodities exchanges around the world. Raw materials are sold in what is called the factor
market, because raw materials are factors of production along with labor and capital.
BREAKING DOWN 'Raw Materials'
Raw materials are accounted for in an intermediate inventory account used by manufacturing companies. As raw materials are used, raw
materials inventory is decreased, while work-in-progress accounts are increased. When the work-in-process items are completed, they are
transferred to finished goods, and are accounted for as cost of goods sold upon sale.
Direct vs. Indirect Raw Materials
Raw materials may be divided into two major classifications: direct and indirect. Direct raw materials are materials that can be directly traced to
the finished product. For example, lumber may be directly traced to a completed chair, so in this situation, lumber is a direct expense.
Indirect raw materials are items that cannot be specifically traced. An example is the wood finish placed on the manufactured chair. Although the
entire drum of wood finish is evident, the specific wood finish within the drum cannot be traced to the exact location on each produced chair.
Raw materials may also be classified as indirect if the total dollar amount is immaterial.
Fixed vs. Variable Costs
Another major classification that can be used to describe raw materials is "fixed or variable costs." Fixed costs relate to charges that do not vary
based on inputs or production levels. Variable costs relate to charges that fluctuate based on the quantity being produced. For this reason, raw
materials are typically variable manufacturing costs because they are only purchased during the production of a good. If no good is being
produced, the cost is not incurred, and because it can be avoided by reducing production, raw materials are a variable cost.
Direct Raw Materials Budget
A manufacturing entity calculates the amount of direct raw materials needed for specific periods, to ensure shortages do not occur. Also, with
the specific amount of direct raw materials, an entity has the ability to reduce inventory stock and security, lower ordering costs, and reduce the
risk of material obsolescence. The direct raw materials budget is calculated by adding the raw materials required for production to the
anticipated or desired ending balance of direct raw materials. This summation is reduced by the amount of direct raw materials on hand at the
beginning of the period. The final figure is the total direct raw materials that need to be purchased.
The processing of raw materials into finished goods through the use of tools and processes. Manufacturing is a value-add process, allowing
businesses to sell finished products at a premium over the value of raw materials used.
BREAKING DOWN 'Manufacturing'
Humans have sought ways to turn raw materials, such as ore, wood, and foodstuff, into finished products for most of history. By refining and
processing this raw material into something more useful, individuals and businesses were adding value. This added value carried with it a higher
price, making manufacturing a profitable endeavor. People began to specialize in the skills needed to manufacture goods, while others provided
funds to businesses to purchase tools and materials.
How products are manufactured has changed over time. The amount and type of labor required in manufacturing varies according to the type of
product being produced. On one end of the spectrum, products are manufactured by hand or through the use of basic tools using more
traditional processes. This type of manufacturing is associated with decorative art, textile or leather work, carpentry, and some metal work. On
the other end of the spectrum, mechanization is used to produce items on a more industrial scale. This type of manufacturing does not require
as much manual manipulation of materials, and is often associated with mass production.
The industrial process used to turn raw materials into products in high volumes emerged during the Industrial Revolution of the 19th century.
Prior to this period, handmade products dominated the market. The development of steam engines and related technologies allowed companies
to use machines in the manufacturing process, reducing the number of personnel needed to produce goods while also increasing the volume of
goods that could be produced.
Mass production and assembly line manufacturing allowed companies to create parts that could be used interchangeably, allowing finished
products to be made more readily by reducing the need for part customization. The use of mass production techniques in manufacturing was
popularized by the Ford Motor Company in the early 20 th century. Computers and precision electronic equipment have since allowed companies
to pioneer high tech manufacturing methods. Products made using these methods typically carry a higher price, but also require more
specialized labor and more expensive capital inputs.
The skills needed to operate the machines and develop the processes used in manufacturing have changed drastically over time. Many low skill
manufacturing jobs have shifted from developed countries to developing countries, as labor in developing countries tends to be less expensive.
More skilled manufacturing, especially of precision and high-end products, tends to be undertaken in developed economies. Technology has
made manufacturing more efficient and employees more productive, meaning that, even as the volume and number of goods manufactured has
increased, the number of workers required has declined.
Economists and government statisticians use various ratios when evaluating the role manufacturing plays in the economy. Manufacturing value
added (MVA), for example, is an indicator that compares manufacturing output to the size of the overall economy. It is expressed as a
percentage of GDP - Gross Domestic Product. The ISM Manufacturing Index uses surveys of manufacturing firms to estimate employment,
inventories, and new orders, and is an indicator of the health of the manufacturing sector.
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B. Source Reduction of waste Stopping waste before it starts way to enhance environmental cleanliness:
Thus, waste minimisation can be defined as systematically reducing waste at source. It means:
* Prevention and/or reduction of waste generated
* Efficient use of raw materials and packaging
* Efficient use of fuel, electricity and water
* Improving the quality of waste generated to facilitate recycling and/or reduce hazard
* Encouraging re-use, recycling and recovery.
Source reduction, also known as waste prevention or pollution prevention, is the elimination of waste before it is created.
Source reduction is decreasing the amount of materials or energy used during the manufacturing or distribution of products
and packages. It basically involves the design, manufacture, purchase or use of materials and products to reduce the amount
or toxicity of what is thrown away. Source reduction means stopping waste before it happens.
Because it stops waste before it starts, source reduction is the top solid waste priority of environmental protection agencies of
many of the developed countries. These innovations conserve resources and reduce packaging waste, while continuing to
provide performance, value and convenience to the consumer.
Source reduction is not the same as recycling. Recycling is collecting already used materials and making them into another
product. Recycling begins at the end of a products life, while source reduction first takes place when the product and its
packaging are being designed. In fact, the best way to think about source reduction and recycling is as complementary
activities combined, source reduction and recycling have a significant impact on preventing solid waste and saving
resources.