Raw material costs refer to the expenses incurred in acquiring the basic materials needed to produce goods. These materials can include metals, plastics, wood, and other substances that manufacturers use to create their products. The price of raw materials can fluctuate based on supply and demand, market conditions, and geopolitical factors, impacting overall production costs. Managing raw material costs is crucial for businesses, as they directly affect profit margins. Companies often seek to negotiate better prices, find alternative suppliers, or invest in recycling to reduce these costs. Effective management can lead to more competitive pricing and improved financial performance.