A bill of materials is the record of the raw materials, sub-assemblies and supplies used to construct a product. The bill of materials is used to calculate the cost of a product, as well as to order parts from suppliers. It is an essential requirement when an organization is using a material requirements planning (MRP) system.
A bill of materials may include not only the unit quantity required to construct a finished product, but also an estimate of scrap that will occur during the production process.
This document must be extremely accurate. If this is not the case, an organization may order incorrectly from suppliers and pull the wrong items from stock for a production run, which can result in major delays in the production process.