Direct materials cost the cost of direct materials which can be easily identified with the unit of production. For example, the cost of glass is a direct materials cost in light bulb manufacturing.
The manufacture of products or goods required material as the prime element. In general, these materials are divided into two categories. These categories are direct materials and indirect materials.
Direct materials are also called productive materials, raw materials, raw stock, stores and only materials without any descriptive title.
Direct materials cost estimation
Steps to
estimate
Estimation (or estimating) is the process of finding an estimate or approximation, which is a value that is usable for some purpose even if input data may be incomplete, uncertain, or unstable. The value is nonetheless usable because it is de ...
the direct material costs:
[Phillip W. Gillet, Jr., J.D. notes, Chapter three
]
#Find the total amount to be produced. This is usually noted as the order size.
#Calculate the total amount of raw materials required to produce the order size.
#Multiply that amount by the cost associated with the raw materials.
#If there is a
waste
Waste (or wastes) are unwanted or unusable materials. Waste is any substance discarded after primary use, or is worthless, defective and of no use. A by-product, by contrast is a joint product of relatively minor economic value. A waste pr ...
or
scrap
Scrap consists of recyclable materials, usually metals, left over from product manufacturing and consumption, such as parts of vehicles, building supplies, and surplus materials. Unlike waste, scrap has monetary value, especially recovered m ...
, its cost should be added to the costs in step 3.
#If the waste or scrap can be sold at
salvage value, this value should be subtracted from the costs in step 4.
See also
*
Variance analysis (accounting)
*
Direct material total variance
*
Direct material price variance
*
Direct material usage variance
References
{{DEFAULTSORT:Direct Materials Cost
Costs