Concept:Raw materials are used up within a production cycle, so they belong to the class of capital that is consumed in a year.
Explanation:A firm's capital is broadly grouped into fixed capital and circulating capital.
Fixed capital refers to durable assets such as machinery and buildings, which are used for many years.
Circulating capital refers to assets that are used up or turned into cash within one accounting year.
Raw materials are purchased and then changed into finished goods during production.
They lose their original form once the production process begins.
They are entirely consumed or transformed within a single year.
Hence, raw materials form part of the stock of a firm.
Stock is therefore treated as circulating capital.
Raw materials cannot be considered fixed capital because they are not long-lasting assets.
Thus, the correct classification of raw materials is circulating capital.
Answer:C. circulating capital