In manufacturing accounts, the cost of raw materials consumed represents the total value of raw materials actually used in production during a period. It is calculated using the formula:
\[ \text{Cost of Raw Materials Consumed} = \text{Opening Stock of Raw Materials} + \text{Net Purchases} - \text{Closing Stock of Raw Materials} \]
where Net Purchases equals Purchases of Raw Materials plus any Carriage Inward, minus any Returns Outward on raw materials.
To solve the question:
- Identify the opening stock of raw materials from the data provided.
- Add the purchases of raw materials (and carriage inward, if given) to get the total raw materials available for use.
- Subtract any returns outward on raw materials to arrive at net purchases.
- Subtract the closing stock of raw materials from the total raw materials available.
Applying this formula to the figures provided in the table yields a cost of raw materials consumed of #43,500.
A common error is to confuse the cost of raw materials consumed with the total purchases figure (ignoring opening and closing stocks), or to add the closing stock instead of subtracting it. Another frequent mistake is to include factory overheads or direct wages in the raw materials figure, which belong to later stages of the manufacturing account.
Exam tip: Always distinguish between raw materials purchased and raw materials consumed. The consumed figure adjusts purchases for changes in raw material inventory (opening and closing stocks) and is the figure that enters the manufacturing cost calculation.
