What is bill of materials?

November 8, 2010

1. Nature of bill of materials

A bill of materials (BOM) is a multi-level document worked out by a company that represents a list of parts or a complete set of physical elements required to manufacture a product.

In process industries you can find other names for a BOM such as the formula, recipe, or ingredients list.

In other words, a bill of materials is simply a kind of shopping list that represents what and how much is required to produce a final product.

Sellers of goods, raw materials, and spare parts can use information provided by bills of material of their clients to understand the buying habits of their customers.

A bill of materials is usually used in cost accounting systems in order to calculate the cost of finished goods.

A bill of materials may contain the following information:

  • product code;
  • description of the product;
  • mechanical characteristics of the product;
  • vendor's name;
  • size, length, weight or other required physical characteristic of the product;
  • test results (shrinkage, lead, etc);
  • estimated/actual yield (allocation, quantity used); and
  • further processing required (sponging, dyeing, enzyme bath, etc).

Bills of materials have the following advantages:

  • help to maintain a centralized and accurate record of information;
  • improve material management through responding to changes in production;
  • control inventory levels;
  • reduce obsolete parts;
  • control and reduce manufacturing costs; and
  • provide what-if capabilities for estimates or customer quotes.

2. Example of bill of materials

A bill of materials, as we mentioned earlier, is a list of parts or components required to produce a product. As there may be different parts or components required for the product manufacturing, a bill of materials can be quite lengthy and contain several levels (in other words, it can be hierarchical). See below for an example of a bill of materials:

Illustration 1: An example of a bill of materials

Bill of materials

Not a member?
See why people join our
online accounting course:
Lecture Contents:
Free Study Notes
Download free accounting study notes by signing up for our free newsletter (example):
First Name:
E-mail:
We never share or sell your e-mail to third parties.
Ask a Question
Suggest a Topic
Do you have an interesting question or topic?
Suggest it to be answered on Simplestudies.com: