Direct materials cost
Direct materials cost is 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[1].
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[2].
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 the direct material costs[3]:
- 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 or scrap, 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
References
- ^ Lanen, W. N., Anderson, S., Maher, M. W. (2008). Fundamentals of Cost Accounting, McGraw Hill, ISBN 9780073526720
- ^ Michael R. Kinney, Cecily A. Raiborn, Cost Accounting: Foundation and Evolution, 7th edition
- ^ Phillip W. Gillet, Jr., J.D. notes, Chapter three